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.
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