KSH HOLDINGS: Clear earnings visibility, orders climbing up

Excerpts from analyst's report

UOB Kay Hian analyst: Edison Chen

KSH executive chairman and MD Choo Chee Onn.KSH Holdings (KSHH SP) Get Paid While Waiting KSH Holdings, a construction firm with >35 years of experience, is one of the best local construction firms in terms of margins and balance sheet.  KSH offers earnings visibility for the next two years with orders recovering, development profits locked in and overseas projects in the pipeline. FY16 net cash of S$53.4m positions KSH well for an upturn in the construction/property market with attractive dividend yield for investors. Initiate coverage with BUY and a 0.93x P/B-based target price of S$0.69.

INVESTMENT HIGHLIGHTS
♦ Clear earnings visibility with orders climbing back above S$400m, investment income and locked-in development profits. While construction orderbook stood at S$223m as at end-FY16, we expect orders to rise to S$400m by Jun 16. Coupled with locked-in property development profits of S$258.2m in pre-sold revenue and an estimated investment income of S$10m-12m a year, we see clear earnings visibility for the group over the next two years.

♦ One of the best local construction firms in terms of margins and balance sheet. As an A1 grade contractor in construction and an A2 grade in civil engineering, as well as a proven construction track record and over 35 years of experience, KSH is one of the best local construction firms in terms of margin management and balance sheet strength.

♦ FY17 dividend yield at an attractive 5.5%

"Robust net cash of S$53.4m should sustain FY17 dividend yield at an attractive 5.5%. As cash flows from existing property development projects return, we expect the group’s robust net cash position to strengthen from S$53.4m in FY16 to S$74.5m by FY17, or 30.2% of its market cap. "We expect the company to pay at least S$0.03/share in dividend (or a 25% payout) for FY17 and beyond, implying an attractive 5.5% yield." -- Edison Chen (photo)

VALUATION/RECOMMENDATION
♦  Initiate coverage with BUY and a 0.93x P/B-based target price of S$0.69. KSH has a proven track record in both the construction business as well as in rewarding shareholders.

Cherry picking projects with decent returns and holding back its full strength allows KSH to maintain a sizeable balance sheet for a possible upturn in the property market.

Our view is that a healthy 12-15% correction in home prices from 2013’s peak should prompt the government to relax some of the property cooling measures, in particular, the additional buyer’s stamp duty and the seller’s stamp duty. We reckon this could likely take place in 2H16 to early-17.

Full report here.