KSH Holdings - OCBC Investment 2018-07-16: Don’t Worry, Be Happy

KSH Holdings - OCBC Investment Research 2018-07-16: Don’t Worry, Be Happy KSH HOLDINGS LIMITED SGX:ER0

KSH Holdings - Don’t Worry, Be Happy

  • Down 5% after ABSD announcement.
  • Still primarily a construction play.
  • Bright prospects remain for sector.

Construction: Already ~S$18b of successful en bloc transactions

  • Following the ABSD announcement after market on 5 Jul, KSH Holdings’ (KSHH) stock price fell 4.7% from S$0.645 to close at S$0.615 on 13 Jul. KSHH is currently trading -20.1% YTD, versus the -8.6% in the FSTREH and –2.5% for the STI, and is currently 33.9% below its peak price of S$0.93 as at 31 Oct 2017’s close.
  • While we do see the latest round of cooling measures as effective curbs to new en-bloc sales in the near-term, we are still optimistic about the S$8.6b of already successful en-bloc transactions in 2017 and the additional > S$9b of transactions YTD 2018.
  • We estimate that the bulk of en bloc redevelopments have yet to award construction contracts as they take time to apply for lease top-ups and seek approvals for the development of the site. For instance, as of 31 Mar 2018, KSHH had only been awarded a letter of intent for the Rio Casa redevelopment, one of the first en bloc transactions in 2017 – with time still needed to obtain the necessary approvals. This report is shared at SGinvestors.io.

Besides, order book in hand is very strong

  • Even disregarding this pipeline of future projects, the group’s construction order book currently stands at ~S$542m (including the Rio Casa LOI), one of the highest it has been as at the end of a quarter since 1Q14. We believe the predictive value of the order book size is high on the revenue of the following six quarters, and expect the construction segment to turn a corner in 2018.
  • Given the slew of en bloc redevelopments in the pipeline as well as a healthy stream of public sector projects this year, we believe that the group’s construction segment has more quarters of strong earnings growth in store – growth which has yet to be priced in.

Still primarily a construction firm

  • KSH Holdings (KSHH) is still primarily a player within the construction space, and we continue to see upside to its price as of 13 Jul 2018.
  • Previously, we did note that KSHH planned to launch four SG residential projects in 2018 with associates and JVs, with the group’s effective share in these projects translating into an aggregate of ~800 additional units. With the new cooling measures, we lower our margin assumptions for its property development projects and our fair value decreases from S$0.98 to S$0.94, with a significant upside from 13 Jul’s close.
  • Reiterate BUY on KSHH.

Eli Lee OCBC Investment Research | https://www.iocbc.com/ 2018-07-16
SGX Stock Analyst Report BUY Maintain BUY 0.94 Down 0.980