KING Wan reported FY2014 results with earnings of $6.7 million, 4 per cent lower y-o-y, but topping our estimate by 12 per cent on higher- than-expected revenue.
The final dividend of 1.5 cents is 0.5 cent higher than that of FY2013, bringing the full-year yield to 6.3 per cent. We continue to expect a three-cent dividend in FY2015 for a sustainable 9.4 per cent yield. The solid order book of $153 million is equivalent to 20 months' revenue.
King Wan's core Mechanical & Electrical (M&E) segment delivered $91.3 million revenue in FY2014, up 44 per cent y-o-y.
The gross margin was weaker at 14.0 per cent compared with 17.1 per cent a year ago, due to a higher proportion of projects in the early low-recognition stage. King Wan's bottomline actually surprised on the upside on the strong revenue, beating our forecast by 12 per cent.
King Wan declared a 1.5 cent final dividend, up from 1.0 cent in FY2013. This brings its full-year yield up to 6.3 per cent. We continue to expect a 3.0 cent total dividend for FY2015 and beyond, which takes its sustainable yield to 9.4 per cent.
King Wan has taken a 19 per cent stake in a new workers' accommodation complex in Tuas, which will be situated opposite one of the Government's four planned recreation centres for foreign workers.
This new dormitory will be ready for operations by 2016. The clear shortage of workers' accommodation has led to a boom in this business, most notably for Centurion Corp.
Current valuation prices KTIS stake or core M&E business at zero. Based on our SOP valuation, the current price assigns zero value to King Wan's core M&E business, or implies a zero valuation of its stake in newly-listed Kaset Thai International Sugar (KTIS). Our SOP valuation is $0.486 per share.
King Wan is trading at a P/B of 1.0 time after factoring in the $24 million gain on the KTIS stake. We maintain our "buy" recommendation on the stock with a target price of $0.43 based on a 7 per cent required dividend yield.
BUY
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