SINGAPORE (June 14): Lim & Tan Securities is reiterating its “buy” recommendation on KSH Holdings with a price target of 70 cents, as it believes the property developer and construction firm should trade up to its three-year historical average of 0.95x P/B.
The research team forecasts that KSH’s net value asset (NAV) per share will increase to 73.5 cents and 82.5 cents in FY17 and FY18 respectively as valuations are “undemanding” due to the firm’s historical average. KSH Holdings currently provides a yield of 6.5% against its peer group average of 3-5%.
Lim & Tan Securities research team also like KSH Holdings for other reasons, namely:
1. Great potential for profits
KSH’s property development division expects $50 million of unrecognised profits to be booked over the next two years, and potentially another $25 million worth of development profits to be recognised when it sells its remaining 8.9% of unsold inventories. Plus, as the company is a finalist for some big-sized private and public projects, Lim & Tan says there is also a possibility of $300-400 million worth of new contracts coming in for the group’s construction division.
2. A strong current financial position
KSH’s net cash position of $53.4 million represents 21% of its market cap, which Lim & Tan says is a “rarity amongst its peers whose gearing range between 50-100%”. The research house expects this figure to double over the next couple of years as it collections from its joint venture partners for development projects and continued influx of construction cash flows. Due to the recent redemption of the company’s $75 million 5.25%, KSH has incurred $3.9 million of annual interest costs savings as well.
3. The company’s track record in reaping shareholders rewards
Lim & Tan highlights that KSH reaped its IPO investors an 8-fold return over a 10-year period via dividends, warrants and bonus share issues. The firm’s share buy-backs have also reflected consistency, which the research house says will enhance KSH’s earnings per share by shrinking the share base and providing support to its share price in volatile times.
4. Safeguarded interests of minority shareholders
As the founder and board of directors collectively own 60.7% of the company, their interests are aligned with minority shareholders, says Lim & Tan. Furthermore, NTU professor Yip Sau Leong holds 7.96% of KSH in the open market; this will help to protect the interests of minority shareholders in the event of a privatisation exercise.
In the long run, the group’s bottom-line may potentially see contributions as soon as March 2018 from a mega township project the company is working on with its Chinese joint venture partner in HeBei, Gaobeidian. With the help of the same partner, KSH’s first China project Liang Jin Ming Ju reaped a profit of $15 million last year – a success story the group is attempting to replicate, says Lim & Tan.
KSH closed 0.9% lower at 54.5 cents on Monday.
