KSH Holdings - OCBC Investment 2019-06-03: Cease Coverage


KSH Holdings - Cease Coverage

  • Margin disappointment for FY19.
  • New IFRS guidelines to frontload i/r expenses.
  • Order book stands above S$489.0m.

Results below expectations

  • KSH HOLDINGS LIMITED (SGX:ER0)' FY19 results were below expectations on the back of poorer than-expected margins. FY19 revenue increased 51.4% to S$200.0m. However, on higher construction costs, profit from operations before share of results from joint ventures and associates declined 18.9% y-o-y to S$21.1m. Operating profit margins were 11% vs. FY18’s 20%.
  • Based on the new IFRS guidelines, borrowing costs relating to residential development properties that are ready for its intended sale should not be capitalised and instead, be expensed when incurred. As a result, the group's share of results from associates and joint ventures was negatively impacted.
  • The share of results from associates worsened from a loss of S$2.6m in FY18 to a loss of S$13.6m in FY19 while that from joint ventures also worsened from a profit of S$12.3m in FY18 to S$4.2m in FY19. As a result, PATMI declined 74.8% to S$7.7m. Excluding the IFRS changes, we estimate that PATMI would be ~S$12m higher which comes up to 63% of our initial full-year forecast.

Front-loading of interest expenses to dampen PATMI in the next 2-2.5 years

  • Looking ahead, we expect the group’s share of results from associates and joint ventures to report negative earnings in the next two to two and a half years, in the earlier stage of the development projects before posting positive results as construction progress continues.
  • The group has seen decent sales for the four residential property developments launched during FY19 – Affinity@Serangoon, Riverfront Residences, Park Colonial and Rezi 24. Collectively, the projects have sold > 2,200 units with positive margins based on options issued to-date.
  • We expect operating margins for construction projects to improve moderately with time. As at April 2019, the order book stands above S$489.0m.
  • Dividends of 2.2 S cents were declared for FY19, which translates to a 4.9% dividend yield against 31 May’s closing price. See KSH's dividends history, KSH's share price.
  • Due to reallocation to resources, we are CEASING COVERAGE on the stock.

Deborah Ong OCBC Investment Research | https://www.iocbc.com/ 2019-06-03
SGX Stock Analyst Report NOT RATED MAINTAIN BUY 99998 SAME 0.810