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.