NRA Capital Pte Ltd

Written by: Jacky Lee

Wednesday 3 Jun 2015

KSH Holdings Limited – FY03/15 results briefing

Strong working relationship with joint venture partners and business network

At a price of $0.51, KSH Holdings trades at 0.8x PBR and 5x historical FY15 PER. We consider its valuation undemanding given its good track record, strong balance sheet with almost zero net gearing.

Background

FY03/15 revenue lowered 15.7% yoy to S$246.1m from S$292m in FY14 due to lower construction revenue amidst challenging environment and Singapore property market slowdown. Net profit dropped by 6.9% yoy to S$41.7m in FY03/15. Partially offset mainly due to lower cost of construction and higher other income. Other income increased by 38.6% yoy in FY03/15 from S$9.4m in FY14 to S$13m due to increase in interest income but partially offset by lower gains on fair value adjustments of investment properties. Income from JV projects and associates contributed 57.2% of pre-tax profit at S$26.2m.

Balance sheet remains strong with low net gearing of 0.4%. The group proposed a final cash dividend of 1.5 sing cents per share on top of an interim cash dividend of 1.25 sing cents per share bringing a total dividend of 2.75 cents per share for FY15 or implied to 5.3% yield of its current share price. The group has consistently give a dividend since listing.

KSH Holdings Limited (KSH) is a construction and property development that was incorporated in 1979 and listed on SGX on February 8, 2007. KSH is an A1-graded contractor under BCA CW01, with the ability to tender for public sector construction projects of unlimited value, and is a main contractor for both public and private sectors in Singapore. KSH also has an A2 grading under BCA's CW02 category for civil engineering, which allows KSH to tender for public sector projects for values of up to S$$90m.

 Key takeaway from FY15 results briefing:   

  • KSH will continue to seek expansion by forming consortium partnerships with reputable companies such as Koh Brothers Group, Heeton Holdings and Lian Beng Group and Chip Eng Seng to clinch big projects locally and overseas and build up track records.
  • Currently has an ongoing of 8 construction projects value at S$420m in order book as at FY03/15.
  • Current ongoing Singapore property development projects are 80 – 85% sold with an average GPM between 25 and 35%.
  • KSH is expecting revenue to remain relatively stable for 1 – 2 years given its stable construction order book on hand.
  • The group expects to maintain its construction operating profit margins around 7-8%.
  • The group expects property development will contribute 70% of earnings and construction 30% in FY03/16.
  • To continue enhancing its recurring income, KSH made an entry into UK property market with 10% stake of S$31m, the freehold property will be redeveloped into service apartments.
  • Late April, the group awarded another construction contract by NUS to build a sports centre worth S$33.2m, with expected contribution to group revenue from FY03/16-FY03/18.
  • In February, S$78.2m contract to construct a new Singapore Chinese Cultural Centre at Shenton Way, expects to complete within 89 weeks.
  • Long-term project including Gaobeidian New Town (together with partners), the total amount of investment in the project is Rmb16bn, the total land size of the project is 8,000 Mu (approximately 533.3 hectares). The group expects to start the project with an initial 500Mu and it will take 10 years to develop.
  • The group have invested Rmb200m in this project and with a readily available bank loan of Rmb1bn, the group expects to recycle its capital from the profits of this development project.
  • Upfront payment of 90% upon sales of project reduced the cash requirement for construction costs in China. Remaining 10% will be collected upon TOP.

Our view:                      

At a price of $0.51, KSH trades at 0.8x PBR and 5x historical FY15 PER. We consider its valuation undemanding given its good track record, strong balance sheet with only 0.4% net gearing. The group has been consistently give out 20-30% dividend payout since FY03/11. With current development projects being carried over the next two years and refocusing on its public projects for its construction segment, we view KSH earning to be stable in the near future.

However, few things to note are, despite being able to tender for projects in Singapore, KSH has relatively no track record in specialty constructions like hospitals and alike constructions could render its bids being pass over to more experienced Japan and Korea contractors. KSH could bolster its construction order books and clinch more development projects through experienced overseas JV partnerships through its tested and proven strategy.

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KSH Holdings Limited – FY03/15 results briefing
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3 June 2015


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