KSH Holdings - UOB Kay Hian 2018-02-22: Banking On A Solid Landbank; Upgrade To BUY

KSH HOLDINGS LIMITED SGX: ER0

KSH Holdings - Banking On A Solid Landbank; Upgrade To Buy

With the recent KSH Holding's share price drop, we believe the negatives in the construction sector are now priced in.
We see some light in the tunnel ahead. While the GaoBeiDian project may perform below expectations, cheap land cost means it is still a mega profit driver for KSH over its 10-year development cycle. Following land acquisitions, KSH now has a solid landbank to ride on Singapore’s property upcycle.
Upgrade to BUY and raise our SOTP target price to S$1.08.

We met up with KSH’s management for an update following the release of its 3QFY18 results.

Negatives in construction sector priced in. With the recent share price drop, it appears that the wave of weakness Singapore’s construction sector has been experiencing is now priced in. Furthermore, there are some signs of a recovery with the Building and Construction Authority expecting the value of construction contracts to be awarded in 2018 at S$26b-31b, up from S$24.5b in its preliminary 2017 estimates.
Rolling over Gaobeidian project to the next five years. While there have been some less-than-positive developments in KSH’s 22.5%-owned Gaobeidian project, this is ultimately a multi-year project that promises great rewards. We lower our ASP assumption for Gaobeidian to Rmb12,000/sqm as we take into consideration current market conditions and extend our projection to incorporate the remaining five years of development plan. We value KSH’s exposure to the Gaobeidian project at S$529.8m.
Solid landbank to ride Singapore property upcycle. We have incorporated KSH’s new pipeline of property developments into our RNAV estimate. We anticipate launches of Rio Casa, Serangoon Ville, Woodleigh Lane and Geylang developments in 2018 with a total of 802 attributable units. KSH also showed execution astuteness in grabbing sites on the cheap in this enbloc wave. Its purchase, as part of a consortium, of Serangoon Ville at $835psf ppr is about 16% lower than the S$964.80psf ppr paid by Keppel-WingTai JV for a nearby Serangoon North site.

Lower FY18-19 net profit estimates by 37.8% and 6.0% respectively. Taking into account the weak results thus far, we cut our FY18-19 net profit estimates by 37.8% and 6.0% respectively.
Risk in Gaobeidian projects.
Upside risk for Singapore’s construction sector.

While our initial forecasts for the Gaobeidian project was a little too optimistic, nobody can deny that Gaobeidian will be a mega profit driver for KSH in the next 10 years, thanks to its cheap land cost.
Furthermore, we also expect Singapore’s property to contribute strongly starting FY19. As such, we upgrade KSH to BUY and raise our target price to S$1.08 as we incorporate a 10-year development plan for the Gaobeidian project into our model. With the share price correction, the market has factored in KSH’s poor results.
Going forward, we believe KSH is more of a property stock now and that investors should buy for profit potential.

Smooth execution in Gaobeidian project. KSH’s fortunes are largely tied to its Gaobeidian project. News of successful execution and higher prices in the Gaobeidian area should help KSH’s share price.
Clear rebound in Singapore property and construction markets.

Edison Chen UOB Kay Hian | Yeo Hai Wei UOB Kay Hian | https://research.uobkayhian.com/ 2018-02-22

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