KSH

OCBC on 2 Jun 2015

KSH reported that PATMI for FY15 (ending Mar 2015) decreased 7.0% to S$41.7m versus S$44.8m in FY14. This was mainly due to reduced contributions from both the construction and development businesses, lower fair value gains on investment assets and higher personnel expenses, but partially offset by higher interest income. We judge these results to be broadly within expectations. Management indicates that the construction sector continues to face headwinds in the form of rising costs and, in addition to private construction projects, the group will maintain a dual focus on tendering for public projects for which demand is anticipated to stay strong due to government infrastructure initiatives. As at end FY15, the group’s construction order book stands at a respectable level of around S$420m. A final cash dividend of 1.50 S-cents was proposed, which brings the total dividend distribution for FY15 to 2.75 S-cents per share. Maintain BUY with an unchanged fair value estimate of S$0.71.

FY15 PATMI down 7.0% to S$41.7m
KSH reported that PATMI for FY15 (ending Mar 2015) decreased 7.0% to S$41.7m versus S$44.8m in FY14. This was mainly due to reduced contributions from both the construction and development businesses, lower fair value gains on investment assets and higher personnel expenses, but partially offset by higher interest income. In terms of the topline, the group booked S$246.1m in revenues over FY15, down 15.7% again mostly due to lower numbers from the construction segment. We judge these results to be broadly within expectations. A final cash dividend of 1.50 S-cents was proposed, which brings the total dividend distribution for FY15 to 2.75 S-cents per share.

Actively diversifying business portfolio
Amidst a slowdown in the domestic residential sector, KSH has actively diversified its business exposure overseas (China, Australia, Malaysia and the UK) and into investment assets that yield recurring income as well. In addition to its acquisition of Prudential Tower as part of a consortium, KSH has acquired in Apr 2015 a stake in a freehold asset on Glenthorne Road, London, which will be redeveloped into an 85-room serviced apartment.

Riding on firm outlook for public construction
Management indicates that the construction sector continues to face headwinds in the form of rising costs. The group intends to leverage on its strong track record and BCA A1 rating and, in addition to private construction projects, will maintain a dual focus on tendering for public projects for which demand is anticipated to stay strong due to government infrastructure initiatives. In line with this, we note that the group has recently won a S$33.2m contract from NUS – a repeat customer - to build a 3-storey University Sports Centre Building. As at end FY15, the group’s construction order book stands at a respectable level of around S$420m. Maintain BUY with an unchanged fair value estimate of S$0.71.

KSH Holdings

OCBC on 28 May 2014

KSH Holdings reported 4QFY14 PATMI of S$11.0m, down 28% YoY mostly due to weaker contributions from the property development segment. Full year FY14 PATMI cumulated to S$44.5m, which increased 18% and constituted 92% of our full year forecast. While FY14 earnings reflected decent growth, it is slightly below our expectations due to slower-than-anticipated progressive recognition at development projects over the fourth quarter. In terms of the topline, FY14 revenues increased 40.1% to S$324.5m as we saw stronger contributions from the construction segment (up 38.6%), the development segment (up 62.9%) and rental income from investment properties (up 13.5%) as well. The group also proposed a final dividend of 1.75 S-cents. Maintain BUY. After updating our model for latest assumptions, our fair value estimate slips to S$0.71 from S$0.73 previously.

FY14 PATMI up 18% YoY
KSH Holdings reported 4QFY14 PATMI of S$11.0m, down 28% YoY mostly due to weaker contributions from the property development segment. Full year FY14 PATMI cumulated to S$44.5m, which increased 18% and constituted 92% of our full year forecast. While FY14 earnings reflected decent growth, it is slightly below our expectations due to slower-than-anticipated progressive recognition at development projects over the fourth quarter. In terms of the topline, FY14 revenues increased 40.1% to S$324.5m as we saw stronger contributions from the construction segment (up 38.6%), the development segment (up 62.9%) and rental income from investment properties (up 13.5%) as well. The group also proposed a final dividend of 1.75 S-cents.

Firm order book of S$410m
As at end FY14, the group has an outstanding order book of S$410m. Given headwinds in the domestic residential sector, we understand that KSH expects private construction demand to slow ahead but aims to further diversify their order book with more public projects over the longer term. The last two contracts won were worth S$42.5m (United World College of South East Asia) in Dec-13 and S$76.9m (KAP Residences) in Feb-14.

About 200 units sold at Sequoia Mansions
At KSH’s 45%-owned Sequoia Mansions (Beijing, China), about 200 units out of 373 residential units have been sold to date. Average selling prices have been healthy, at ~ RMB 25k sqm, and we understand the commercial components will be launched after the project’s anticipated TOP in mid-2015.

Maintain BUY with lower FV estimate of S$0.71
KSH now holds S$142.4m in cash and equivalents with a low net gearing of 1%, and management continues to seek accretive acquisition opportunities. Already, the group has acquired land bank in Negeri Selangor, Malaysia and a 28% stake in Prudential Tower in Raffles Place. Maintain BUY. After updating our model for latest assumptions, our fair value estimate slips to S$0.71 from S$0.73 previously.

KSH Holdings

OCBC on 13 Feb 2014

KSH Holdings reported 3QFY14 PATMI of S$9.9m, up 22% YoY, mostly due to increased contributions from the construction and property development segments. 9MFY14 PATMI cumulates to S$33.5m, up 50.3%, and makes up 69% of our full year forecast. We judge this to be mostly within expectations, and anticipate a back-loaded year in terms of revenue recognition from construction and development projects. In Jan-14, the group launched its 45%-owned Beijing condo project (Liang Jing Ming Ju Phase 4) and saw a strong performance. Over 60% of the residential units (comprising a total net sellable area of 31.4k sqm) were sold at average prices of RMB 23.5k psm – higher than previously anticipated – and we expect this project’s contribution to drive continued earnings growth in FY15 as it achieves TOP. Maintain BUY with an unchanged fair value estimate of S$0.73.

3QFY14 PATMI up 22% YoY
KSH Holdings reported 3QFY14 PATMI of S$9.9m, up 22% YoY, mostly due to increased contributions from both the construction and property development segments. 9MFY14 PATMI cumulates to S$33.5m, up 50.3%, and makes up 69% of our full year forecast. We judge this to be mostly within expectations, and anticipate a back-loaded year in terms of revenue recognition from construction and development projects. In addition, we note that 3QFY14 earnings were also impacted by up-front marketing costs for recent projects launches. 

Successful launch at key Beijing project
In Jan-14, the group launched its 45%-owned Beijing condo project (Liang Jing Ming Ju Phase 4) and saw a strong performance. Over 60% of the residential units (comprising a total net sellable area of 31.4k sqm) were sold at average prices of RMB 23.5k psm – higher than the RMB 20k psm previously anticipated. We understand that KSH will now launch the remaining residential units and the retail component progressively, and we expect the project’s contribution to drive continued earnings growth in FY15 as it achieves TOP. As at end Dec-13, key projects, KAP Residences and NeWest, are 100% and 99% sold respectively, and recently launched Floraville (formerly Seletar Garden) is 50% sold.

Construction order book healthy at S$460m
The group’s order book currently stands at a healthy S$460m, which translates to 1.6 times total LTM construction revenues. The last two key contracts won by KSH were worth S$42.5m (United World College of South East Asia) in Dec-13 and S$76.9m (KAP Residences) announced yesterday evening.

Maintain BUY with unchanged fair value estimate S$0.73
KSH now holds S$144.6m in cash and equivalents with a low net gearing of 3.4%; we see this strong balance sheet to hold dual key roles: 1) buttressing the group amidst an uncertain residential outlook, and 2) providing dry powder for capital allocation into accretive opportunities. Maintain BUY with an unchanged fair value estimate of S$0.73.

KSH Holdings

UOBKayhian on 18 Nov 2013

Valuation/Recommendation

• Maintain BUY and target price of S$0.71, derived from our SOTP valuation. Based on Bloomberg’s estimate, KSH has a 12-month target price of S$0.73. 
• Financial results in line with estimates. KSH reported 1HFY14 net profit of S$23.6m (+66.6% yoy) which accounts for 55% of our FY14 forecast. The rise is mainly attributed to increased contributions from property development as share of results of associates’ jumped 359.4% yoy to S$15.4m.
• Cost pressure mounts. Despite the stellar results, we noted that rising labour costs continue to threaten profitability of construction firms such as KSH. KSH saw gross profit margin drop from 16.1% in 1HFY13 to 7.2% in 1HFY14, as old projects with higher margins ended and rise in labour costs eroded profits. Cost overruns in a particular project also impacted bottom-line.

Our View/Outlook

• Strong earnings growth to continue. With locked-in sales from successful property launches, KSH is expected to continue enjoying good earnings growth and visibility. Of its eight launched projects, more than 80% of its units have been sold. Based on current sales, we expect KSH to recognise more than S$100m (>S$0.25/share) of profits over the next five years.
• Township development still in the pipeline. We understand from management that the township development of GaoBeiDian is still in the pipeline, and will be a key project for the group going forward. Gaobeidian New town development is a JV with Heeton and Tee International. Gaobeidian is 82km from Beijing city, and is well connected via rail and expressways. Gaobeidian station lies on the Batong line of Beijing Subway, and is 9 and 11 stations away from Tian’anmen East Station and Beijing International Airport respectively.
• Our view. While sentiment continues to be weak among property counters, we believe KSH offers value to investors looking for companies with good earnings growth and visibility for the next few years. KSH’s stable dividend policy also ensures investors get a piece of its growing pie. Assuming KSH maintains its FY13 dividend of S$0.025/share, this will translate to an attractive yield of 5%. The company has already announced an interim dividend of S$0.0125/share. The stock has since found some support near its book value of about S$0.47.

KSH Holdings

OCBC on 13 Nov 2013

2QFY14 PATMI came in at S$12.2m, up 24% YoY and 6% QoQ, mostly due to stronger contributions from both the property development and construction segments. These results were spot on with our expectations as 1HFY14 PATMI now makes up 49.7% of our full year estimates. An interim dividend of 1.25 S-cents per share was declared. Despite a market cap of S$205m, KSH now holds S$76m in cash with a low net gearing of 6.4%. This provides sizable capital headroom for growth, and we continue to like management’s ability to execute on accretive growth opportunities (LTM ROE: 24%) and balanced approach for capital allocation (FY14F dividend yield: 4.8% yield). Maintain BUY with an unchanged fair value estimate of S$0.73. Our fair value is based on 5 times FY14F construction earnings and 40% discount to the property segment’s RNAV.

Earnings momentum continues – 2QFY14 PATMI up 24% YoY
2QFY14 PATMI came in at S$12.2m, up 24% YoY and 6% QoQ, mostly due to stronger contributions from both the property development and construction segments. These results were spot on with our expectations as 1HFY14 PATMI now makes up 49.7% of our full year estimates. Topline for the quarter increased 55.4% YoY to S$89.1m mostly due to higher construction revenue and a larger recognition from Lincoln Suites. An interim dividend of 1.25 S-cents per share was declared.

Healthy order book of S$405.0m
The construction order book stands at S$405.0m as at end Sep-13, which we deem to be a fairly healthy level translating to about 1.6 times LTM construction revenues. Management continues to show ability in replenishing the order book, with new order wins of S$332m in YTD 2013 versus S$163m in 2012. The last contract awarded in Aug-13 was worth S$98.4m for the construction of the NEWest development which is expected to complete within 30 months.

Looking forward to Beijing condo launch
We are keeping close tabs on the anticipated launch of KSH’s 45% Beijing condo project (Liang Jing Ming Ju Phase 4), which will be particularly significant as it is slated to contribute an estimated $23m net earnings upon TOP (est. FY15). KSH’s Singapore developments have performed fairly well to date. As at end Sep-13, the 136-unit NeWest and 142-unit KAP Residences are almost completely sold.

Maintain BUY with unchanged fair value estimate S$0.73
Despite a market cap of S$205m, KSH now holds S$76m in cash with a low net gearing of 6.4%. This provides sizable capital headroom for growth, and we continue to like management’s ability to execute on accretive growth opportunities (LTM ROE: 24%) and balanced approach for capital allocation (FY14F dividend yield: 4.8% yield). Maintain BUY with an unchanged fair value estimate of S$0.73. Our fair value is based on 5 times FY14F construction earnings and 40% discount to the property segment’s RNAV.

KSH Holdings

OCBC on 13 Aug 2013

KSH’s 1QFY14 PATMI increased 165% YoY to S$11.4m due to stronger contributions from both the property development and construction business segments. 1QFY14 PATMI now constitutes 24% of our full year forecast and, this being so, we judge this set of results to be in line with expectations. The group’s order book stands at S$402.0m as at end Jun 2013 which we view to be a relatively healthy level. We continue to look forward to KSH’s 45% Beijing condo project beginning sales this year which could be significant for KSH’s earnings profile into FY15. In Singapore, new launches at NeWest and KAP Residences have shown firm performances to date; 85 out of a total of 136 units at NeWest have been sold at a median price of S$1,399 psf and at KAP Residences, 140 out of 142 units sold for a median price of S$1,789 psf. Maintain BUY with an unchanged fair value estimate of S$0.73.

1QFY14 PATMI up 165% YoY to S$11.4m
KSH’s 1QFY14 PATMI increased 165% YoY to S$11.4m due to stronger contributions from both the property development and construction business segments. Share of results of associates increased by S$6.5m YoY to S$7.8m in 1QFY14 as increasing construction progress from development property projects at the associates/JV levels converted into heavier bottomline contributions. 1QFY14 PATMI now constitutes 24% of our full year forecast and, this being so, we judge this set of results to be in line with expectations. Topline for the quarter came in at S$83.3m, up 51% YoY, mostly due to higher construction revenues and a larger recognition from Lincoln Suites.

Order book outlook remains stable
The group’s order book stands at S$402.0m as at end Jun 2013 which we view to be a relatively healthy level. We understand management is actively seeking more contracts. In 2013 to date, the group replenished its order book by S$233m – higher than the S$163m total last year. From our conversations with management, we believe the outlook for the construction sector and the scope for order book replenishment remain stable given the pipeline from residential project launches over the last six months. In terms of new contracts, the group would also pay greater attention to public sector constuction projects over the next two quarters to strengthen their track record in that space.

Maintain BUY at unchanged fair value estimate of S$0.73
We continue to look forward to KSH’s 45% Beijing condo project beginning sales this year which could be significant for KSH’s earnings profile into FY15. In Singapore, new launches at NeWest and KAP Residences have shown firm performances to date; 85 out of a total of 136 units at NeWest have been sold at a median price of S$1,399 psf and at KAP Residences, 140 out of 142 units sold for a median price of S$1,789 psf. Maintain BUYwith an unchanged fair value estimate of S$0.73.

KSH Holdings

UOBKayhian on 13 Aug 2013

Valuation/Recommendation

• Maintain BUY and target price of S$0.71, derived from our SOTP valuation. Based on Bloomberg’s estimate, KSH has a 12-month target price of S$0.73.
• As mentioned in our earlier report, with locked-in sales from its successful property launches and strong construction orderbook, KSH is expected to continue enjoying good earnings growth and visibility for the next five years. While outlook for the local property sector has become dimmer, KSH’s established track record in construction and diversification into China will help provide support for future earnings. 

Financial results

• KSH reported 1QFY14 net profit of S$11.5m (+157.0%), with increased contributions from both construction and property development. Revenue from construction jumped 49.6% yoy to S$71.7m while share of results of associates increased 504.7% yoy to S$7.8m as KSH recognised profits from more development projects. 
• Balance sheet remains strong with net debt/asset ratio remaining low at 1.3%. KSH’s dividend payout ability continues to be underpinned by strong free cash flow generation of S$0.02/share in 1QFY14.

Outlook

• In line with expectations. 1QFY14 net profit accounted for 26% of our full-year forecast.
• A dimmer outlook for local property sector. As Singapore property faces strong headwinds amid recent cooling measures, management will be engaging in more selective acquisition to replenish its local land bank and exploring opportunities in second- and third-tier cities like GaoBeidian in China.
• Phase 4 of the lucrative Liang Jing Ming Ju (LJMJ) in Beijing will be launched in 2QFY14. With a guided selling price of Rmb20,000 psm (3.6x the selling price of phase 3 launched in 2006), LJMJ is expected to contribute very positively to earnings in FY15/16.
• Contributions from construction segment likely to remain strong for at least the next two years with KSH’s robust orderbook of S$446m as at 30 Apr 13. With the buoyant local construction outlook and KSH’s quality contractor status, we believe KSH will be able to constantly replenish and maintain its strong orderbook of S$400m-600m.

KSH Holdings

UOBKayhian on 30 Jul 2013

We initiate coverage with a BUY with a target price of S$0.71, representing a 29.1% upside. With locked-in sales from its successful property launches, KSH is likely to enjoy good earnings visibility over the next five years. As an established contractor, KSH continues to replenish its orderbook with consistent contract wins with a comparative favourable margin compared to peers. Strong earnings and free cash flow (FCF) support KSH as a dividend play with a current dividend yield of 4.5%.

Investment Highlights

• Strong earnings visibility. Through its JVs, KSH has interest in 13 local property development projects. Based on KSH’s existing (eight launched) projects and current sales, we conservatively estimate KSH to recognise a profit of about S$124.6m (S$0.32/share) over the next five years. In addition, KSH’s 45% interest in its Beijing property development project, Liang Jing Ming Ju (LJMJ) Phase 4, is expected to contribute very positively to earnings for FY16. We estimate a profit of S$32m (S$0.08/share) for a fully sold LJMJ, which is expected to be launched by 3Q13. 

 

• Quality contractor with a sturdy portfolio. KSH is a Building and Construction Authority (BCA) A1 graded main contractor with over 30 years of operating history. With an established track record, KSH has been able to command a higher PBT margin from its construction arm (12.7% vs peers’ average of 10.2%) and constantly replenishes its orderbook. As at 30 Apr 13, KSH maintained a strong orderbook of S$446m, of which more than half (S$233.6m) was awarded in 2013.

• A potential source of firepower. KSH’s principal investment property is Tianxing Riverfront Square (TRS), a 36-storey retail and grade A office building at the heart of Tianjin’s CBD. While rental yield for TRS is at market rate, we believe KSH’s 69% stake in TRS may become a potential source of firepower for the company’s future developments. As at 31 Mar 13, TRS had a fair value of S$97.6m. Given TRS’s ideal location and proven occupancy track record, we believe KSH can easily monetise the property when the opportunity arises. 

• Dividend payout that has more room to grow. KSH has a laudable history of rewarding shareholders with dividends. Given its strong FCF and low payout ratio, we believe KSH is capable of maintaining or increasing its dividends going forward. In the past five FYs, KSH has a payout ratio of 21.8-44.0%. Assuming a conservative payout of 25% for FY14, it will translate to a dividend of 2.7 S cents and an attractive yield of 4.9%.

KSH Holdings

UOBKayhian on 11 June 2013

Valuation

·          KSH Holdings (KSH) is trading at 5.7 FY13 PE and 1.2x P/B.

·          Share price catalysts include new contract wins, successful property launches and attractive dividend yield.

Investment Highlights

·          Quality contractor with an established track record. As a BCA A1 graded contractor, KSH has an impressive project portfolio that includes Fullerton Bay Hotel and NUS University Town’s Educational Resource Centre, both of which had been conferred the prestigious BCA Construction Excellence award 2013. With the industry recognition of its construction quality, KSH has maintained a strong orderbook of S$446m as at 30 Apr 13, that will be recognised over the next 2-3 years. 

·          Stable sustainable dividend. KSH has been paying dividends since its listing in 2007. For the past 5FYs, the company has paid out 25-44% of its earnings. For FY13, KSH declared a dividend of 2.5 S cents (26.3% payout) which translates to a dividend yield of 4.3%. The low dividend payout (FY13: 26.3% payout) coupled with a strong free cash flow (FY13: 9.3% FCF yield) support KSH’s ability to sustain its future dividend payout.

·          Bulging property development portfolio to boost earnings. Through its investment in associates, KSH has interest in 13 property development projects, with stakes varying from 25% to 45%. Six of these projects, that were fully launched, have been more than 80% sold. Sales in the two recent launches NEWest and KAP have also been brisk, with more than 50% of the units sold since its launch in May. For FY13, profit contribution from only three projects (Cityscape, The Boutiq and Rezi 26) has already amounted to S$16.6m (S$0.04/share). With additional profits from other development projects like The Palacio and Sky Green expected to be recognised going forward, we expect KSH to enjoy strong earnings growth.

·          Solid fundamentals. With minimal net debt/asset of 1.7%, balance sheet looks strong with bulk of its assets in properties and cash. (Investment properties and development properties: 38.4% of assets. Cash and deposits: 21.1% of assets)

Future Plans

·          In a JV with Heeton and Tee International, KSH will be involved in the township development of Gaobeidian New Town in China. With an estimated capital outlay of Rmb16b (S$3.2b), this massive project boasts a 533.3ha land located at the heart of Great Beijing Economic Circle, 82km from Beijing City. Situated next to Beijing Shijiazhuang Expressway and the Beijing High Speed Rail passenger line, the project is expected to capitalise on Beijing’s prosperous property market for the next 10-15 years.

Our View

·          KSH has outperformed the market with a remarkable 59.7% rise vs STI’s gain of 0.4% ytd. Despite the impressive feat, valuation remains undemanding at 5.7x FY13 PE. With the successful sales of its property development projects, KSH’s visible earnings looks set to gain traction. The company’s stable dividend payout also ensures shareholders get a piece of KSH’s growing pie.      

KSH Holdings

OCBC on 28 May 2013

KSH reported 4QFY13 PATMI of S$14.0m, up 85% YoY mostly due to an increase in profit contributions from development projects held by its associates and JVs. On a full year basis, FY13 PATMI is S$36.3m which increased a strong 98%. We judge this to be somewhat above our expectations (our FY13 PATMI forecast is S$30.7m) as the pace of revenue recognition at JV development projects came in faster than anticipated. Management proposed a final dividend of 1.15 S-cents per share. Likely catalysts ahead includes major pipeline launches at Hong Leong Garden (NeWest), King Albert Park and Seletar Garden which would all likely take place this year. In China, KSH’s 45% Beijing condo project could also begin sales this year. We view a potential firm performance at this project to be significant for KSH’s earnings profile which could sustain earnings growth into FY15 by contributing an estimated S$23m net earnings upon TOP. Maintain BUY with an unchanged fair value estimate of S$0.73.

A strong year of earnings
KSH reported 4QFY13 PATMI of S$14.0m, up 85% YoY mostly due to an increase in profit contributions from development projects held by its associates and JVs. On a full year basis, FY13 PATMI is S$36.3m which increased a strong 98%. We judge this to be somewhat above our expectations (our FY13 PATMI forecast is S$30.7m) as the pace of revenue recognition at JV development projects came in faster than anticipated. Topline for the year increased 42% to S$206.1m mostly due to strong contributions from the construction segment, which rose S$60.9m to S$206.3m. Management proposed a final dividend of 1.15 S-cents per share – in line with our expectations – which brings the total dividend payout for FY13 to 2.5 S-cents per share.

Still looking to strengthen order book
The order book currently stands at S$446.0m which we view to be healthy and we understand management is actively in the midst of seeking more contracts. In 2013 to date, order book replenishment now cumulates to S$233m – already exceeding the S$163m total last year. Construction contracts won include Q Bay Residences, a JTC district cooling system building and its 45%-owned condominium development project in Beijing, Liang Jing Ming Ju Phase 4 (LJMJ).

Maintain BUY at unchanged S$0.73
Likely catalysts for the share price includes major pipeline launches at Hong Leong Garden (NeWest), King Albert Park and Seletar Garden which would all likely take place this year. In China, KSH’s 45% Beijing condo project could also begin sales this year. We view a potential firm performance at this project to be significant for KSH’s earnings profile which could sustain earnings growth into FY15 by contributing an estimated S$23m net earnings upon TOP. Maintain BUY with an unchanged fair value estimate of S$0.73. Our model already accounts for accretion from LJMJ into the property segment’s RNAV and use a 5x PE multiple to value the construction segment, in line with peers trading at 5-7 times.

KSH Holdings

OCBC on 11 Apr 2013

We recently met with KSH management and keep intact our FY13E and FY14E forecasts at S$30.7m (up 68% YoY) and S$53.0m (up 72% YoY), respectively, which are underpinned by progress billings for already-sold projects in Singapore. Beyond FY14, we see earnings growth momentum likely continuing due to the upcoming launch of its Beijing condo project this year (Liang Jing Ming Ju Phase 4) which would contribute an estimated S$23m net earnings upon TOP. We understand management is also focused on launching Phase 1 of its 533-hectare Gaobeidian township project (GBD), located 30 mins away from Beijing city via high-speed rail. For upcoming FY13E results, we expect final dividends in the range of 0.5 – 1.5 S-cents and possibly a bonus share issue as well. Maintain BUY with an increased fair value estimate of S$0.73, versus S$0.62 previously, as we now incorporate accretion from Liang Jing Ming Ju into our SOTP valuation model and raise our PE multiple for the construction segment from 4x to 5x, in line with peers trading at 5-7 times.

FY13E earnings outlook intact
We recently met with KSH management and keep intact our FY13E and FY14E forecasts at S$30.7m (up 68% YoY) and S$53.0m (up 72% YoY), respectively, which are underpinned by progress billings for already-sold projects. We estimate its property development portfolio of 13 Singapore projects to yield S$128m of yet unrecognized profits ahead, of which S$54m (42%) is already launched and sold. For the construction segment, order book replenishment now cumulates to S$202m in 2013 to date – somewhat above forecast and already exceeding the S$163m total last year.

Beijing condo likely to sustain earnings growth
Beyond FY14, we see earnings growth momentum continuing due to the launch of its 45%-owned Beijing condo this year, Liang Jing Ming Ju Phase 4 (LJMJ), which would contribute an estimated S$23m net earnings upon TOP. LJMJ has a NSA of 31.4k sqm residential and 8.1k sqm retail shops, with average breakeven and selling prices at RMB 8k psm and RMB 20k psm respectively. We estimate a 5.5 S-cents accretion to RNAV, which we now incorporate into our valuation given adequate operational visibility.

Focus on Gaobeidan township execution
KSH also has a 30.6% effective stake in a township development at Gaobeidian (GBD) New Town – 30 mins away from Beijing city via at a newly completed high-speed train line. Total investment of the 533-hectare township is estimated at RMB16b and the JV is currently focused on launching Phase 1 which is a residential project. GDB would potentially yield S$195m net profits to KSH and accrete a hefty 30 to 35 S-cents to RNAV. However, we currently value this project at zero accretion in our model until more visibility regarding execution is gained.

Expect strong FY13E earnings ahead
For upcoming FY13E results, we expect to see final dividends in the range of 0.5 – 1.5 S-cents and possibly a bonus share issue to alleviate low trading liquidity currently. Maintain BUY with an increased fair value estimate of S$0.73, versus S$0.62 previously, as we now incorporate accretion from LJMJ into the property segment’s RNAV and raise our PE multiple for the construction segment from 4x to 5x, in line with peers trading at 5-7 times.

KSH Holdings

OCBC on 1 Apr 2013

KSH would acquire a 30% stake in 160 Changi Rd, located at the corner of Changi Rd and Lorong 105 Changi, for S$20.4m. Assuming a 50:50 retail and office breakdown and selling prices of S$2.8k and S$1.8k for retail and office, respectively, we estimate a 1.5 S-cents accretion to KSH’s RNAV. We like that KSH has re-deployed capital expediently into new projects after raising S$13.9m in mid-Mar 2013, and believe this points to a well thought-out plan for capital management and growth. Maintain BUY with an increased fair value estimate of S$0.62 versus S$0.61 previously. Our SOTP methodology conservatively values KSH’s construction segment at 4x FY13E earnings and its property segment at a 40% RNAV discount. This being so, its fair value estimate could re-rate signficantly if construction order book replenishment continues unabated and/or upcoming launches perform well.

Acquires stake in 160 Changi Road
KSH would acquire a 30% stake in 160 Changi Rd located at the corner of Changi Rd and Lorong 105 Changi. The consortium comprises KSH (30%), Lian Beng (40%) and Tee Intl (30%) and would acquire 160 Changi for S$68m. The site is zoned “Commercial” and has a land area of 17,974 sq ft with plot ratio 3.0. The group intends to redevelop the site into a mixed retail and office project.

Project expected to accrete 1.5 S-cent to RNAV
We believe the redevelopment would consist of 50:50 retail and office components, and estimate the overall breakeven price to be S$1.75k psf. Assuming a selling price of S$2.8k and S$1.8k for retail and office, respectively, this project has an estimated net profit margin of 20%, on an overall basis, and would accrete 1.5 S-cents to KSH’s RNAV.

Fast re-deployment of capital for growth
We like that KSH has re-deployed capital expediently into new projects after raising S$13.9m from a placement of new and treasury shares in mid-Mar 2013. Over the last two weeks, the group has increased its stake in its Beijing condominium project (Liang Jing Ming Ju, Phase 4) from 26.2% to 45.0% for S$1.9m, and acquired a 30% stake in 160 Changi Rd for S$20.4m. In our view, this points to a well thought-out plan for capital management and growth, particularly as KSH bought back a significant number of shares into its treasury at S$0.22 - S$0.32 in late 2012 and placed them out at S$0.408 to private investors in Mar 2013.

Fair value estimate raised to S$0.62
Maintain BUY with an increased fair value estimate of S$0.62 versus S$0.61 previously as we incorporate this acquisition into our model. Our SOTP methodology conservatively values KSH’s construction segment at four times FY13E earnings and its property segment at a 40% RNAV discount. This being so, its fair value estimate could re-rate signficantly if construction order book replenishment continues unabated and/or upcoming launches perform well.

KSH Holdings

OCBC on 22 Mar 2013

KSH recently conducted a placement for 30.9m new shares and 4.1m existing treasury shares at 40.8 S-cents per share. This was at a 5.2% discount to the weighted average traded price of 43.0 S-cents on 11 Mar 2013 and raised S$13.9m of capital for the group. Shortly after the placement, KSH deployed S$1.9m to increase its stake in its Beijing condominium project (Liang Jing Ming Ju, Phase 4) from 26.24% to 45.00%. Pending further visibility on capital deployment, we are overall neutral on this placement but note it would increase the size of the public float and possibly improve the counter’s trading liquidity, which has been low historically. Maintain BUY on KSH. Our fair value estimate dips mildly to S$0.61 from S$0.62, due to a mild dilution effect, but our forecast for buoyant earnings growth over FY13-14 remains unchanged.

35m share placement at 5.2% discount
KSH recently conducted a placement for 30.9m new shares and 4.1m existing treasury shares at 40.8 S-cents per share. This is at a 5.2% discount to the weighted average traded price of 43.0 S-cents on 11 Mar 2013 and would raise, on a net basis, S$13.9m of capital. Management plans to use 70% of the proceeds to support the growth of the company in Singapore, the PRC and Southeast Asia, and the remaining 30% for working capital needs.

Increased stake in Beijing condominium project to 45%
Shortly after the exercise, KSH deployed S$1.9m to increase its stake in its Beijing condominium project (Liang Jing Ming Ju, Phase 4) from 26.2% to 45.0%. We understand that this project, with estimated sellable area of ~31.4k sqm residential space and 8.1k sqm retail, is likely to commence construction and sales this year. We currently value this project conservatively at book and assume no accretion in our valuation model, pending more clarity on sales later this year.

Overall neutral on placement exercise
Pending further visibility on capital deployment, we are overall neutral on this placement exercise but note that it was conducted at a premium to book (39.9 S-cents per share as at 31 Dec 2012). This exercise would also increase the size of the public float and possibly improve the counter’s trading liquidity, which has been low historically. Finally, we note that no vendor shares were placed (aside from treasury shares bought back earlier at significantly lower prices), which likely points to management’s continued confidence in the group’s prospects. 

Maintain BUY
Maintain BUY on KSH. However, pending further visibility on capital deployment, our fair value estimate dips to S$0.61 from S$0.62 due to a mild dilution effect. Our SOTP methodology values the construction segment at 4x FY13E earnings and applies a 40% discount to RNAV for the property segment. Our forecast for buoyant earnings growth ahead for KSH over FY13-14 remains unchanged.

KSH Holdings

OCBC on 8 Feb 2013

KSH reported 3Q FY13 PATMI of S$8.1m, which surged 179% YoY mostly due to contributions from its property development segment as the group recognized earnings from The Boutiq, Cityscape@Farrer Park and Rezi 26. 9M FY13 earnings now cumulate to S$22.3m, up 108.3% YoY and forming 73% of our FY13 forecast. The group has sold a significant portion of launched projects, and we expect progress billings from already sold projects to underpin earnings growth ahead. Maintain BUY with an increased fair value estimate of S$0.62, versus S$0.50 previously, as we lower the RNAV discount for its property segment from 50% to 40% to reflect a lower risk profile given a larger percentage of projects sold, and raise our PE multiple for its construction segment from 3.0x to 4.0x - a level closer in line with that of its peers.

Delivering strong growth - 3QFY13 PATMI up 179% YoY
KSH reported 3Q FY13 PATMI of S$8.1m, which surged 179% YoY mostly due to contributions from its property development segment as the group recognized earnings from The Boutiq, Cityscape@Farrer Park and Rezi 26. 9M FY13 earnings now cumulate to S$22.3m, up 108.3% YoY and forming 73% of our FY13 forecast. Topline for the quarter came in at S$48.9m, which also increased 68% YoY mostly due to an increase in contributions from the construction segment.

Development progress billings underpin growth profile
The group has sold a significant portion of launched projects, and we expect progress billings from already sold projects to underpin earnings growth ahead. Cityscape@Farrer Park, a major project in KSH’s portfolio, is about 67% sold to date, while Sky Green at Macpherson and Palacio are 96% and 71% sold, respectively. Looking ahead, we expect the group to launch Hong Leong Garden, Seletar Garden and King Albert Park. Though the residential market is currently in a state of flux after recent cooling measures, we note that these three projects contain significant commercial components which would likely perform well.

Outlook for the construction segment healthy
The group recently cinched a contract win for Q Bay Residences, which boosted its construction order book by ~45% to ~S$461m as at 31 Jan 2013. Given the recent white paper on population growth indicating an increased population of 6.5m – 6.9m by 2030, we expect construction demand to remain firm over the long term as Singapore continues to ramp up infrastructure and housing growth. 

Fair value estimate increased to S$0.62
Maintain BUY with an increased fair value estimate of S$0.62, versus S$0.50 previously, as we lower the RNAV discount for its property segment from 50% to 40% to reflect a lower risk profile given a larger percentage of projects sold, and raise our PE multiple for its construction segment from 3.0x to 4.0x - a level closer in line with that of its peers.

KSH Holdings

OCBC on 23 Jan 2013

KSH reported that it has received the LOA for the main contract works for Q Bay Residences. This contract win - worth a hefty S$142.3m – is one of the largest awarded to KSH in recent years, and would boost its construction order book by ~45% to more than S$460m. Construction for the project would commence in Apr 2013 for a total length of 33 months. With an anticipated net profit margin above 10%, this would contribute more than S$14m of net profits and add significant incremental visibility to construction earnings ahead. With a good track record of execution from management and a solid earnings growth profile (YoY earnings growth forecasted at 68% in FY13 and 73% in FY14), KSH remains one of our top value picks in the small-cap universe. Potential catalysts ahead include new contract wins and the anticipated launch of Hong Leong Gardens in 1H13. Maintain BUY with an unchanged fair value estimate of S$0.50.

New win to boost construction order book by 45%
KSH Holdings Limited (KSH) recently reported that it has received the Letter of Acceptance for the main contract works for Q Bay Residences at Tampines. This contract, awarded by a consortium comprising Fraser Centrepoint, Far East Organization and Sekisui House, is worth a hefty S$142m and is one of the largest won by KSH in recent years. As a result of this, we estimate KSH’s construction order book to increase by a whooping 45% to S$460m. Construction for the project would commence in Apr 2013 for a total length of 33 months. With an anticipated net profit margin above 10%, this project would contribute more than S$14m of net profits and add significant incremental visibility to KSH’s construction earnings ahead. 

Order book replenishment beating 2013 expectations
We understand from management that its construction unit has the capacity to handle up to S$700m in its order book and that KSH is still in the midst of actively tendering for contracts. We had forecast for KSH to win an estimated S$170m in contracts in 2013, and it appears the company would likely exceed expectations handily. 

One of our top value picks in the small-cap universe
We continue to see significant fundamental value in KSH’s share price, even given our conservative sum-of-the-parts valuation made up of 1) the construction segment valued at 3x FY13 segment earnings and 2) the property development segment valued at a 50% discount to RNAV. With a good track record of execution from management and a solid earnings growth profile (YoY earnings growth forecasted at 68% in FY13 and 73% in FY14), KSH remains one of our top value picks in the small-cap universe. Potential catalysts ahead include new contract wins and the anticipated launch of Hong Leong Gardens in 1H13. Maintain BUY with an unchanged fair value estimate of S$0.50.

KSH Holdings

OCBC on 15 Nov 2012

KSH reported 2QFY13 PATMI of S$9.8m, up a whooping 90% YoY mainly due to increased contributions from the construction business and project recognition from Cityscape@Farrer Park. We judge this set of results to be mostly in line with expectations as 1HFY13 PATMI now made up 46% of our FY13 forecast. We note the pace of profit recognition at Cityscape@Farrer in 2QFY13 (through share of results of associates) was somewhat below expectations – S$2.1m versus an expected S$3.5m-S$4.5m – but this was offset by higher profits from the construction segment. Management also announced an interim dividend of 1.35 S-cents, up 35% from a 1.0 S-cent interim dividend last year. KSH’s order book continues to be healthy at S$375m as of end Sep 12, down 10% QoQ versus S$416m as of end Jun 12. Maintain BUY with an unchanged S$0.50 fair value estimate (50% discount to RNAV).

2QFY13 PATMI up 90% YoY
KSH reported 2QFY13 PATMI of S$9.8m, up a whooping 90% YoY mainly due to increased contributions from the construction business and project recognition from Cityscape@Farrer Park. We judge this set of results to be mostly in line with expectations as 1HFY13 PATMI now made up 46% of our FY13 forecast. We note the pace of profit recognition at Cityscape@Farrer in 2QFY13 (through share of results of associates) was somewhat below expectations – S$2.1m versus an expected S$3.5m-S$4.5m – but this was offset by higher profits from the construction segment. 2QFY13 topline came in at S$57.3m, up 5.4% YoY again mostly from increased construction revenue but offset by lower development property recognition. Management also announced an interim dividend of 1.35 S-cents, up 35% from a 1.0 S-cent interim dividend last year.

Healthy sales at residential projects
Cityscape@Farrer Park, a key project for KSH accounting for an estimated 64% of total gross profits, is about 61% (152 out of 250 total units) sold to date, up significantly from 22% sold as of end Jun 2012. KSH’s newly launched project, Sky Green, also turned in a strong performance with ~80% of units sold (140 out of 176 total units) at average price levels around S$1.5k psf. In addition, we saw sales at the Boutiq creep up from 72% (end Jun 12) to 80% (end Sep 12), and Lincoln Suites from 81% to 84% sold. As of end Sep 12, the Palacio was also 80% sold. Looking ahead to CY13, we are likely to see launches at Hong Leong Garden Shopping Centre, Seletar Garden and 11 King Albert Park.

Maintain BUY
KSH’s order book continues to be healthy at S$375m as of end Sep 12, down 10% QoQ versus S$416m as of end Jun 12. We see management actively seeking order book replenishment, likely in its niche private residential construction space. Its balance sheet remains healthy at 34% net gearing and S$50m cash. Maintain BUY with an unchanged S$0.50 fair value estimate (50% discount to RNAV).

KSH Holdings

OCBC on 1 Nov 2012

We conducted an independent visit to Cityscape@Farrer Park yesterday and found that 61% (152 out of 250 total units) have been sold to date, up significantly from 22% sold as of end Jun 2012. After visually inspecting the construction site, we judged it likely that progressive recognition for Cityscape would begin in 2QFY13 and boost earnings (to be announced in mid Nov 2012) by an estimated $3.5m to S$4.5m. This would drive a substantial YoY increase over last year’s quarterly PATMI of S$5.2m. Since we have upgraded KSH to a Buy on 21 Sep 2012, its share price has appreciated 31%. We still see significant upside at current price levels , however, against our fair value estimate of S$0.50 (50% discount to RNAV). In particular, we see the upcoming results as a postitive near-term catalyst, while the company’s fundamentals continue to strengthen as sales conversions continue at a healthy pace across its property developments. Reiterate BUY as our key small-cap conviction idea.

Cityscape boost likely in quarterly results ahead
Cityscape@Farrer Park, in which KSH has a 35% stake, is a key project for KSH - accounting for an estimated 53% (S$63.9m) of total gross profits for its existing development portfolio. We conducted an independent visit to the site yesterday and found that 61% (152 out of 250 total units) have been sold to date, up significantly from 22% sold as of end Jun 2012. Current price levels are just north of S$1.4k psf – marginally above our forecast - after management raised prices a month ago. From our channel checks, buyer interest for Cityscape appears to be firm with healthy show-flat attendances during weekends; this despite recent property curbs limiting loan tenures. After visually inspecting the construction site, we judged it likely that progressive recognition for Cityscape would begin in 2QFY13 and boost earnings (to be announced in mid Nov 2012) by an estimated $3.5m to S$4.5m, driving a substantial YoY increase over last year’s quarterly PATMI of S$5.2m. This increased visibility of development earnings would likely be a positive share price catalyst ahead, in our view.

Strong launch at new project Sky Green
KSH’s newly launched project, Sky Green, also turned in a sterling performance with ~80% of units sold (140 out of 176 total units). Average price levels were around S$1.5k psf. KSH has a 25% stake in the 176-unit project located at MacPerson Road and we expect this project to contribute an estimated S$10.6m gross profit to the company. In our view, this performance re-affirms our thesis that management has a demonstrated ability to seek out and deploy capital into attractive real estate development projects and execute sharply on sales, alongside its joint venture partners.

Fundamentals continue to strengthen
Since we have upgraded KSH to a Buy on 21 Sep 2012, its share price has appreciated 31%. We still see significant upside at current price levels, however, against our fair value estimate of S$0.50 (50% discount to RNAV). In particular, we see the upcoming results as a postitive near-term catalyst, while the company’s fundamentals continue to strengthen as sales conversions continue at a healthy pace across its property developments. Reiterate BUY as our key small-cap conviction idea.

KSH Holdings

OCBC on 21 Sept 2012

Due to a rapid sales pickup at a key project, Cityscape@Farrer Park, we now forecast for FY13 (ending Mar 13) earnings to surge 68%. Similarly, we expect FY14 earnings to increase 73%. We see sustained earnings growth as a key price catalyst ahead, particularly as continued market liquidity seeks out deep value laggards like KSH (0.6x trailing PB, 3x FY13E PE). We also note KSH has been actively buying back shares near current levels – which management views as severely undervalued – and has a mandate to purchase up to a quarter of its free float, with ample cash (S$53m) to do so. Finally, we see a major re-rating as likely imminent given KSH’s transition, over the last two years, from a cash-hoarding contractor to an property player actively managing shareholders’ capital – deploying capital into accretive site acquisitions and returning excess cash via dividends and share buy-backs. Upgrade KSH to BUY as our key small-cap conviction idea. Our FV increases to S$0.50, from S$0.26 previously, as we lower the RNAV discount to 50% to reflect active capital management, better-than-expected real estate execution, and a still resilient construction order book.

Key catalyst: FY13 earnings expected to increase 68% YoY
Due to a rapid pickup in sales at a key project, Cityscape@Farrer Park, from 22% sold as of end Jun12 to ~45% currently, we now forecast for FY13 (ending Mar 13) earnings to surge 68% as progressive recognition begins. Similarly, we expect FY14 earnings to increase 73% to S$53.0m. We see sustained earnings growth as a key share price catalyst ahead, particularly as continued market liquidity seeks out deep value laggards like KSH (0.6x trailing PB, 3.0x FY13E forward PE).

Likely limited downside here: share buybacks and rich dividend
From current levels, we see compelling risk-reward as the price downside appears likely limited. First, KSH has been actively buying back shares near current levels – which management views as severely undervalued – and has a share buy-back mandate to purchase up to a quarter of its free float, with ample cash (S$53m) to do so. Secondly, KSH would likely keep up its dividend, which we see underpinning its share price given an expected yield of 6.1%.

See major re-rating ahead: from cash hoarding to active capital management
Finally, we see a major re-rating as likely imminent given KSH’s transition, over the last two years, from a cash-hoarding construction contractor to an property player actively managing shareholders’ capital – deploying capital into a portfolio of accretive real estate acquisitions and returning excess cash to shareholders via dividends and share buy-backs. In last 12 months, we estimate KSH has deployed an estimated S$160m to six JV projects, of which three we note are led by JV partner Oxley Holdings – a developer with a sharp execution record.

Upgrade to BUY: our key conviction small-cap idea
Upgrade KSH to BUY as our key small-cap conviction idea. We see a confluence of multiple tailwinds ahead for the share price, and our FV increases to S$0.50 from S$0.26 previously, as we lower the RNAV discount for the property segment to 50% to reflect active capital management, better-than-expected real estate execution, and a still resilient construction order book.

KSH Holdings

OCBC on 15 Aug 2012

KSH Holdings (KSH) announced 1QFY13 revenue of S$55.2m – 35% higher YoY mostly due to stronger construction revenues and $6.0m of progress recognition from Cityscape. 1QFY13 PATMI was up 66% YoY to S$4.3m on the back of firmer performance from its construction segment, S$0.8m disposal gains from the strata sale of one level of Tianxing Riverfront Square (Tianjin, China), and share of profits from associates reversing to a S$1.3m gain from a S$0.8m loss in 1QFY12. We judge this set of results to be in line with expectations. Excluding the ~S$0.8m disposal gain, we estimate core PATMI of S$3.5m in 1QFY13, constituting 24% of our FY13 forecast. We understand that KSH is actively seeking order book replenishment, though a weaker outlook in the private construction segment and limited major catalysts ahead in CY12 could prove challenging. Maintain HOLD with a higher S$0.26 fair value estimate, versus S$0.25 previously, as we update our valuation model with a firmer valuation for Tianxing Riverfront Square.

Good kick-off to the year
KSH Holdings (KSH) announced 1QFY13 revenue of S$55.2m – 35% higher YoY mostly due to stronger construction revenues and $6.0m of progress recognition from Cityscape. 1QFY13 PATMI was up 66% YoY to S$4.3m on the back of firmer performance from its construction segment, S$0.8m disposal gains from the strata sale of one level of Tianxing Riverfront Square (Tianjin, China), and share of profits from associates reversing to a S$1.3m gain from a S$0.8m loss in 1QFY12. We judge this set of results to be in line with expectations. Excluding the ~S$0.8m disposal gain, we estimate core PATMI of S$3.5m in 1QFY13, constituting 24% of our FY13 forecast. As at end-Jun 12, KSH’s order book stands at ~S$416m, which is relatively healthy even though somewhat lower versus the S$467m as at end-FY12. The lower order book also reflects the increasing challenging environment in the private construction segment.

Encouraging sales pick-up at residential projects
We saw an encouraging pick-up in the pace of sales at previously launched projects. Pre-sales figures of the Boutiq and Cityscape, which were 72% and 22% sold respectively as of end-Apr 12, each climbed to 5% by end-June 12. At the mostly sold Lincoln Suites (81% as at end-Jun 12), however, sales were more muted with only an additional 2% sold in 1QFY13. The group also recently launched the Palacio (formerly the Camay Court in Telok Kurau) and we expect MacPherson Green site to be launched later this year. However, management guided it is unlikely recent acquisitions at Hong Leong Garden Shopping Centre, Seletar Garden and 11 King Albert Park will be launched in 2HCY12.

Maintain HOLD
We understand that KSH is actively seeking order book replenishment, though a weaker outlook in the private construction segment and limited major catalysts ahead in CY12 could prove challenging. Maintain HOLD with a higher S$0.26 fair value estimate, versus S$0.25 previously, as we update our valuation model for new acquisitions with a firmer valuation for Tianxing Riverfront Square.

KSH Holdings

OCBC on 8 June 2012

The BCA is forecasting a 16% to 34% dip in total construction demand to S$21b-S$27b in 2012, with the bulk of the dip expected to come from lower private demand (S$8b – S$12b in 2012 versus S$16.8b in 2011). KSH has historically been focused on private projects given higher margins, and the weakened outlook would likely put downward pressure on its construction business over the mid-term. With net gearing at a low 4.1% and its expertise in construction, we see KSH well-poised to add value as a JV partner with larger developers. Already we have seen KSH taking stakes in the redevelopment of Hong Leong Garden Shopping Centre, Seletar Garden and 11 King Albert Park. We see execution at KSH’s redevelopment projects to be key drivers for the share price ahead and could offset, to an extent, the weaker private construction outlook. Maintain HOLD rating at an unchanged S$0.25 fair value estimate.

Private construction outlook continues to look weak
While KSH Holdings’ (KSH) order book is currently relatively strong at S$467.0m, we believe the rate of book replenishment could be uncertain ahead. The Building and Construction Authority (BCA) of Singapore is forecasting a 16% to 34% dip in total construction demand to S$21b-S$27b in 2012 from S$32b in 2011, with the bulk of the dip expected to come from lower private construction demand (S$8b – S$12b in 2012 versus S$16.8b in 2011); public demand would only fall marginally to S$13b-S$15b in 2012 from S$15.2b in 2011. This is in line with our view that the domestic residential sector could soften somewhat going forward given persistent macro headwinds from Europe and potentially more property curbs from the government. Since KSH has historically been focused on private construction projects given the higher profit margins involved, we believe that the weakened outlook would likely put downward pressure on its construction business over the mid-term.

En-bloc opportunities to feature ahead
KSH has a strong balance sheet with net gearing at a low 4.1%, and cash and equivalents of S$65.2m. Together with its expertise in construction, we believe KSH is well-poised to add value as a JV partner with larger developers, particularly for those with higher leverage. Already we have seen KSH taking stakes in the redevelopment of Hong Leong Garden Shopping Centre, Seletar Garden and 11 King Albert Park. Looking ahead, we believe en-bloc opportunities for mixed developments with retail components could be interesting propositions for value accretion. We see execution at KSH’s redevelopment projects to be key drivers for the share price ahead and could offset, to an extent, the weaker private construction outlook.

Maintain HOLD at unchanged S$0.25 fair value estimate
Management continues to execute favorably and we understand that KSH is actively seeking order book replenishment. However, given a weaker outlook in the private construction segment and macro headwinds from an uncertain global environment, we maintain our HOLD rating at an unchanged S$0.25 fair value estimate.