KEONG HONG - UOB Kay Hian 2015-12-02: A Fruitful Year And Yet Another In FY16

KEONG HONG HOLDINGS LIMITED 5TT.SI

KEONG HONG (KHHL SP) - A Fruitful Year And Yet Another In FY16

Maintain BUY with a slightly lower SOTP target price of S$0.635 as we factor in the S$0.04/share dividend that has been declared in FY15.

4QFY15 net profit surged 411% to S$22.5m mainly due to the recognition of property development profit from its sold out 20% owned executive condominium project, Twin Waterfalls.
Strong cash flow generation boost net cash position. Keong Hong generated free cash flow of S$37.5m during FY15 as net cash swelled to S$33.6m (S$0.149/share) as at 30 Sep 15.

As a result of the bumper profit, Keong Hong has declared a final dividend of S$0.04/share.
Inclusive of the interim dividend of S$0.005/share (declared and paid earlier), it translates to an attractive dividend yield of 9%.

For FY16, investors can look to another year of sustained profit with the expected TOP of Skypark Residences (92% sold) which we estimate Keong Hong to recognize property development profit of S$14.9m (S$0.064/share).
Keong Hong paid out 27% of its earnings in FY15. Given management’s generous track record of rewarding shareholders, we believe shareholders may be in for another bumper dividend when Skypark Residences achieved TOP in FY16.

As at 30 Sep 15, Keong Hong was in a net cash position ofS$33.6m. We expect Keong Hong to receive about S$17m in cash from the Twin waterfalls project when its associate pays out dividends back to the group.
In FY16, the TOP of Skypark may see another S$30m of cash proceeds being returned to the group. After taking into account the S$0.04/share dividend pay out and incoming cash proceeds, Keong Hong’s net cash position may expand to S$71.3m (S$0.306/share).

As at 30 Sep 15, Keong Hong had a construction orderbook of S$462m, providing earnings visibility till FY18. Of noteworthy, Keong Hong secured a S$107.5m contract in Aug 15 for the construction of a 20-storey medical building at Victoria Street, which is expected to be fully completed by Aug 17.
Given the short time frame of the project, we expect bulk of the profit from this project to be recognized in FY16 and FY17.

Loke Chunying UOB Kay Hian | http://research.uobkayhian.com/ 2015-12-02

UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 0.635 Down 0.665