KSH Holdings - UOB Kay Hian 2018-06-07: Performance At Upcoming Sales Launches Is Key

KSH Holdings - UOB Kay Hian 2018-06-07: Performance At Upcoming Sales Launches Is Key KSH HOLDINGS LIMITED SGX: ER0

KSH Holdings - Performance At Upcoming Sales Launches Is Key

  • KSH’s 4QFY18 results came in above expectation with full-year profit exceeding our forecast by 19.1%. 
  • Despite the fall in revenue, construction margins expanded. Singapore’s outlook generally looks positive, so performance at the upcoming launches should be a catalyst. 
  • Also, the Gaobeidian project should see progress by Sep 18 although selling prices are lower. 
  • Maintain BUY with an SOTP-based target price of S$1.04.



RESULTS


4QFY18 results above expectation.

  • KSH Holdings’ (KSH) 4QFY18 results exceeded our expectation with total FY18 attributable profit outperforming our forecast by 19.1%. 
  • FY18 attributable profit came in at S$29.5m (-28.1% y-o-y) with the y-o-y dip largely a result of a high base in FY17. 
  • Despite a 34.6% decrease in revenue, the fall in attributable profit was lower thanks to an expansion in construction margins from 21.6% in FY17 to 23.8% in FY18. This marked a reversal in the trend of shrinking construction margins though challenges remain.


STOCK IMPACT

  • Orderbook healthy at > S$542.0m orderbook and S$85.9m sales balance. Including a proposed condominium housing development to a 35%-owned associate, KSH’s orderbook stands healthy at more than S$542.0m with more than two years of order visibility ahead. Around 96.5% of units launched by associates and JVs under KSH have been sold with sales balance proceeds of S$85.9m, which will be progressively recognised.
  • Generally positive outlook in Singapore. With the Singapore economy growing 4.4% y-o-y in 1Q18 and full-year growth forecasted at 2.5-3.5%, KSH’s growth is expected to remain strong. While the construction sector has shrunk 5.0% y-o-y in terms of contracted value, the Building and Construction Authority (BCA) expects building demand to increase in 2018 as S$26b-S$31b of construction contracts could be awarded in the year (up from S$24.5b in 2017). The recent spate of collective sales should also help construction activity to grow. Also, the Urban Redevelopment Authority’s (URA) 1Q18 3.9% gain in private home prices is the steepest q-o-q gain since 2Q10 while the number and prices of office rentals rose 2.6% and 1.3% q-o-q.
  • Focus will be on performance of upcoming launches. Going forward, all eyes will be on the sales of the Riverfront Residences (formerly Rio Casa) and Park Colonial (formerly Woodleigh Lane) by end of this month. A solid sales showing will translate into continued earnings performance.
  • However, Gaobeidian project sees further downward price pressure. While there have been delays in the sales launch of KSH’s Gaobeidian project, it looks as though they should receive the necessary government approval and be ready in Sep 18. However, as the Chinese government demands that property prices stay low at around the Xiong An area, management now expects to launch the initial phase at only Rmb10,000/sqm (previously Rmb12,000/sqm).


EARNINGS REVISION/RISK

  • Construction business to pick up from FY19 onwards. Management is very optimistic about the construction business and is also confident about sustaining the higher y-o-y margins seen in 4QFY18. Based on its project schedule, we now expect the group's construction business to grow by 50% y-o-y in revenue and generate commendable profits of ~S$15m.
  • Forecasts adjusted based on new project launch schedule. Following updates on the latest property development project schedule, we now push back our assumption on earnings recognition on its new projects to FY20 where we expect to see bumper profits (~S$45m) from property developments.
  • Gaobeidian not rosy but still very profitable. Despite the cut to our estimate on the Gaobeidian project's selling price, the fact that the sum of all land costs and construction costs is below Rmb4000/sqm still makes it a very profitable development. Also, the low price will almost ensure a successful launch with inventory clearing out fast. We now expect initial recognition to commence in FY20,


VALUATION/RECOMMENDATION


Maintain BUY with SOTP-based target price of S$1.04.

  • Due to KSH's accumulation of landbank at competitive prices, the land values of most of its sites are enjoying an uplift in land value (based on recent transacted prices at surrounding en-bloc and government land sales (GLS) sites). Some of these sites include Rio Casa at S$669 psf (vs S$842 psf) and Serangoon Ville at S$835 psf (vs S$964.8 psf). 
  • With the recent launch of The Verandah Residences by consortium partner, Oxley, enjoying overwhelming sales we are upbeat about KSH's upcoming launches in 2018. 
  • We lower our property RNAV discount to 40%, on the back of higher land value and strong uptake in residential launches as the market absorbs upcoming supply.


SHARE PRICE CATALYST

  • Success of 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/construction market.
  • Solid sales performance in KSH’s project launches.







Edison Chen UOB Kay Hian | https://research.uobkayhian.com/ 2018-06-07
SGX Stock Analyst Report BUY Maintain BUY 1.04 Down 1.08



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