Kori Holdings

UOBKayhian on 17 Jan 2013

Valuation

·      The company has just completed its IPO and is trading at 5.3x FY11 and 1.5x P/B.

·      Share price catalysts include possible announcement of contract wins and M&A activities post this equity fund raising exercise. However, earnings growth for 2012 will stay muted, largely due to the one-time IPO expenses. 

Investment highlights

·      Kori is principally a Singapore-based construction company that provides structural steelworks services and tunneling services in Singapore, Dubaiand Malaysia.

·      As a licensed structural steel contractor, Kori can design, supply and erect steel struts and sheet piles for its main contractors. The group has been involved in the construction of Singapore MRT North-South Line and East-West Line, Kuala Lumpur (KL) City Centre Twin Towers, KL LRT and Putrajaya MRT in Malaysia and Dubai Metro Line in the Middle East. This segment contributes approximately 90% of the revenue and can command 10-15% in gross profit margin.

·      The tunnelling services business segment involves the supply of skilled personnel for the macro-tunnelling construction works. Right before the assembling and launching of the Tunnel Boring Machine (TMB), Kori will install TMB cradles, thrust frames and temporary rings and erection of staging platform, all or which are crucial to the successful tunnelling of underground railways, road tunnels, sewer tunnels etc.

·      Although the tunnelling segment only represents approximately 10% of revenue, it can secure gross profit margins of 15-25%. Management is confident of growing this segment at least till 2018 after the announcement of the Thomson Line by theSingapore government. They believe that Kori has a market share of approximately 20% in Singaporefor MRT projects with the next larger competitor Yongnam taking 40-50%.     

·      As of Dec 12, Kori had an orderbook of S$82.8m of which S$50m will be completed in 2013 and the remaining in 1Q14.

·      With the IPO proceeds, Kori is also looking to secure a land parcel in Malaysia as its fabrication yard. This is to cater for the potential infrastructure projects in Malaysia, such as the electrified double-track railway project in Johor Bahru, mass rapid transit system in KL and a low-cost carrier terminal at KLIA.

Share Price Catalysts

·      We expect to see some announcement in contract wins for this year as the Singapore government has finalised the alignment of the Thomson Line MRT network. This S$18b investment will have 22 stations with 30km length of MRT tracks and stations and we expect the government to award these contracts to the main and sub contractors some time in the second quarter of 2013.