KSH Holdings - UOB Kay Hian 2016-08-11: Smooth Execution

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KSH HOLDINGS LIMITED ER0.SI

KSH Holdings (KSHH SP) - Smooth Execution

• KSH’s 1QFY17 results came in within expectations. Notably, construction margins improved during the quarter due to enhanced productivity and lower raw material costs. 
• Going forward, we expect the robust underlying construction orderbook and pre-sold property project balance to provide strong earnings visibility. 
• Maintain BUY with target price unchanged at S$0.69. 
• The stock is trading at 5.4% FY17F yield and 0.8x FY17F P/B while boasting FY17 net cash of S$74.5m (29.7% of market cap).

RESULTS

1QFY17 results in line. 

• KSH Holdings (KSH) delivered a decent set of 1QFY17 results with no surprises. PATMI came in flat at S$10.3m (+0.1% yoy) on the back of S$61.5m in revenue (-0.6% yoy).

Construction margins improved with better productivity. 

• Notably, cost of construction decreased by 4.8% yoy to S$50.6m in 1QFY17. The decrease was mainly due to improvements in productivity and lower material costs. Therefore, margins of operating profits before shared results from associates improved to 9.3% from 6.8% a year ago.

STOCK IMPACT

Construction orderbook stronger than reported. 

• While KSH only reported a construction orderbook of approximately S$168.2m as at 30 Jun 16, we believe that there is an additional term contract that the group has entered into with National University of Singapore (NUS) for a period of two years with an option to extend for another one year, worth about S$200m (exact amount undisclosed). Therefore, the underlying orderbook is estimated to be worth about S$370m, closer to our S$400m target.

Earnings further supported by larger pre-sold property pool. 

• During the quarter, KSH managed to sell more of its property pool with approximately 92.9% of launched units sold (91.1% in previous quarter). Hence, there is a balance of shared revenue of approximately S$239.7m to be recognised, which will support the group’s bottom-line for the next two years.

EARNINGS REVISION/RISK

Forecasts unchanged as fundamentals remain intact. 

• We keep our forecasts unchanged as the company has delivered as expected. We opine that there are minimum downside risks to our earnings forecasts for the next two years given its strong visibility.

VALUATION/RECOMMENDATION

Maintain BUY with P/B-based target unchanged. 

• We opine that the stock should trade close to its 3-year historical average P/B of 0.93x due to: 
  1. a brighter outlook with orders returning and clear earnings visibility, 
  2. strengthening balance sheet, 
  3. superior track record and skilled management, 
  4. shareholder-friendly management, and 
  5. sustainable and attractive FY17 dividend yield of 5.4%.

SHARE PRICE CATALYST

Better-than-expected dividend payout. 

• While we expect the company to pay at least S$0.03/share in dividend (or a 25% payout) for FY17 and beyond, we will not rule out the possibility of them paying more due to the large net cash balance.

Edison Chen UOB Kay Hian | http://research.uobkayhian.com/ 2016-08-11

UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 0.690 Same 0.690