Roxy-Pacific -- target 72 cents, King Wan Corp, 43 cents

OSK-DMG maintains 'buy' call and 43-c target on King Wan Corp

Analyst: Lee Yue Jer (left)

King Wan has received 116.32m KTIS shares worth SGD45.3m (which began trading on the Stock Exchange of Thailand yesterday).
 

King Wan will recognise a SGD24m profit, and we continue to expect a 1-cent special dividend to be declared for FY14, increasing to 1.5 cents for FY15 and beyond. 

Further, there may be long-term capital gain potential from the KTIS shares due to: i) rebounding sugar prices and ii) investment in two new biomass electricity plants with the IPO proceeds which is expected to drive earnings growth. 

We estimate King Wan’s SOP valuation to be SGD0.49 per share. Our SOP methodology is as follows: 

i) core mechanical & electrical and rentals businesses at 9x P/E; 
ii) book value for investments in property development and vessel-owning associates; 
iii) capital gains on vessel but conservatively zero gains on property developments; 
iv) KTIS shares at THB10 per share; 
v) less SGD1m of net debt. 

The SOP value for King Wan works out to be SGD0.49 per share. Interestingly, King Wan’s price of SGD0.335 (recently) implies a core P/E of 0.5x. 

Alternatively, the share price implies 7.75x core P/E and zero value for the entire KTIS stake. We maintain BUY with SGD0.43 TP based on a 7% required yield, though a lower required yield is arguable.