King Wan Corporation

UOBKayhian on 12 Jul 2012

Valuations
· Based on the current price of 17.7 S cents per share, the stock is trading at a deep discount to the NAV/share of 31.1 S cents post-divestment of its two Thai associates.
· In FY12, King Wan Corporation (King Wan) declared a dividend of 1.5 S cents/share or a dividend yield of 8.5%. With S$28.7m of cash on hand, it will not be surprising if King Wan pays out more dividends in the future.

Investment Highlights
· Good track record in JVs. King Wan ventures into non-core businesses through minority stakes in associate companies. On 25 Apr 12, King Wan announced the sale of its entire stake in Environment Pulp and Paper Company Limited (EPPCO) and Ekarat Pattana Company Limited (EPC) for approximately S$50.2m to Kaset Thai Industry Sugar Company Limited (KTIS). King Wan had invested in 20% shareholding in each of the two associates in 2004 for S$12m. Since then, they had generated S$19.7m in dividends for the group. The disposal of the two Thai associates will also see a 32% increase, or 7.6 S cents in the NTA/share of the group to 31.1 S cents. Similarly in 2004, they invested in Cable International for just $0.6m for a 30% stake and subsequently sold it for S$9m in 2010.
· Strong cash holdings for potential acquisitions. Due to the disposal of assets and dividend income from associate companies, King Wan had generated S$19.4m of investing cash flow since FY10. Furthermore, cash flow from operating activities also came in strongly at S$24.7m during the same period as the mechanical and electrical (M&E) business made a strong turnaround. As a result, King Wan’s cash holdings surged from S$2.2m at the beginning of FY10 to S$28.7m by FY12. With large cash holdings on hand, King Wan is well positioned for more acquisitions if an attractive investment opportunity arises.
· Other JVs (% ownership). Meadows Bright Development (35%) is currently developing their second project, “The Starlight Suites”, located at River Valley Close with 105 high-end units ranging from 560 sf to 1500 sf. Since its soft launch in Jun 10, Meadow has sold 50 units at an ASP of S$2,200 psf as of Nov 11. Dalian Shicheng Property Development (36.6%) is developing the Singapore Garden in Dalian, China. The development includes 3,270 residential units, commercial buildings and recreational facilities. King Wan has recorded around S$9m-10m of impairment from Dalian Shicheng since FY10. Hence, it is very unlikely to record more losses in the future. S.I Property Co. Ltd (30%) owns 16,190 sqm of office space, 1,118 sqm of retail space in Thailand.

Outlook:
· HDB has launched 25,200 units of Build-to-order (BTO) flats in 2011 and will continue to launch another 25,000 units in 2012. In addition, according to Urban Redevelopment Authority (URA), there are 78,572 of uncompleted private residential units as at 1Q12. Hence, we expect that there will be a steady supply of projects for King Wan. The group had secured S$19.7m worth of projects between Feb-May 12, bringing its orderbook to a record S$168.5m.