KSH reported 3Q12 PATMI of S$3.1m, down 64% YoY. This was below our expectations, mostly due to slower than expected construction progress and no recognition from the property development. 9M12 PATMI constituted 59% of our FY12 forecast of S$18.2m, which we revised down to S$13.2m. We believe the business outlook has weakened for the construction segment as the BCA now forecast private construction demand to fall from S$16.8b (prelim – 2011) to S$8-12b (2012). Similarly, we see headwinds for the residential development segment going forward given policy impact and macro-economic uncertainties. We downgrade KSH to a HOLD and lower the fair value to S$0.25 versus S$0.30 previously, using a lower 4x PE and rolling over to FY13 earnings for the construction segment.
Earnings miss due to no development contribution. KSH reported 3Q12 PATMI of S$3.1m - down 64% YoY – below expectations mostly due to slower than expected construction and no recognition from the property development. 9M12 PATMI constituted 59% of our FY12 forecast of S$18.2m, which we revised down to S$13.2m. 3Q12 topline came in at S$30.5m, down 51%.
A weaker business outlook. The BCA now forecast private construction demand to fall from S$16.8b (prelim – 2011) to S$8-12b (2012). While public construction is expected to be flat YoY, public projects have not been KSH’s focus historically and it remains to be seen whether similar margins can be maintained.
Won S$53m contract for The Boutiq. KSH also announced a 21-month S$53.3m contract to construct The Boutiq in Kiliney Rd, which is owned by a JV between Tee International, Heeton Holdings and KSH. This bumps KSH’s existing order book to ~S$506m which is still growing at a pace in line with our near-term expectations.
Limited sales at residential projects. We also saw limited sales at KSH’s development projects over the last quarter. The sales progress at The Boutiq and Lincoln Suites were largely unchanged from end-Sep11, while we saw 2% of Cityscape sell over the quarter, bumping total units sold from 20% to 22%. As indicated in our last report, we expect headwinds in the residential segment given policy impact and macro-economic uncertainties.
Downgrade to HOLD. Since we upgraded KSH to a BUY rating on 13 Sep 2011, the share price has appreciated 14%. While management continues to execute admirably, we believe that the shares are fully valued currently due to external headwinds and a challenging business outlook. We now downgrade KSH to a HOLD and lower the fair value to S$0.25 versus S$0.30 previously, using a lower 4x PE and rolling over to FY13 earnings for the construction segment.
A weaker business outlook. The BCA now forecast private construction demand to fall from S$16.8b (prelim – 2011) to S$8-12b (2012). While public construction is expected to be flat YoY, public projects have not been KSH’s focus historically and it remains to be seen whether similar margins can be maintained.
Won S$53m contract for The Boutiq. KSH also announced a 21-month S$53.3m contract to construct The Boutiq in Kiliney Rd, which is owned by a JV between Tee International, Heeton Holdings and KSH. This bumps KSH’s existing order book to ~S$506m which is still growing at a pace in line with our near-term expectations.
Limited sales at residential projects. We also saw limited sales at KSH’s development projects over the last quarter. The sales progress at The Boutiq and Lincoln Suites were largely unchanged from end-Sep11, while we saw 2% of Cityscape sell over the quarter, bumping total units sold from 20% to 22%. As indicated in our last report, we expect headwinds in the residential segment given policy impact and macro-economic uncertainties.
Downgrade to HOLD. Since we upgraded KSH to a BUY rating on 13 Sep 2011, the share price has appreciated 14%. While management continues to execute admirably, we believe that the shares are fully valued currently due to external headwinds and a challenging business outlook. We now downgrade KSH to a HOLD and lower the fair value to S$0.25 versus S$0.30 previously, using a lower 4x PE and rolling over to FY13 earnings for the construction segment.
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