• S$15.8m boost from Chinese TOP
• Strong balance sheet in net cash
• 250.4% total return since Sep12 upgrade

2QFY16 PATMI up 244% YoY to S$23.2m

KSH reported that its 2QFY16 PATMI increased 244% YoY to S$23.2m mostly due to the completion of a property development project (Liang Jing Ming Ju Phase 4 – Sequoia Mansion) in Beijing China, which contributed S$15.8m to the bottom line, and a stronger share of results of associates which rose 311% to S$22.2m due to higher progress recognition from development projects.

In terms of the topline, 2QFY16 revenues were fairly stable at S$62.1m (down 0.9% YoY) due to slightly lower project revenues from its construction segment. We judge this set of results to be mostly in line with expectations and 1HFY16 PATMI now make up 57% of our full year forecast.

The group proposes to issue one bonus share for every eight existing shares, and also a total dividend of 1.55 S-cents per share for 1HFY16 (0.30 S-cents special and 1.25 Scents interim).

Enjoys a strong balance sheet in net cash position

KSH successfully tendered for S$146.2m of construction projects year to date and the order book is fairly healthy at S$324m as at end Sep- 15. In addition, the group continues to enjoy a robust balance sheet with S$144m in cash and equivalents and is in a net cash position.

We understand that management continues to be on a disciplined lookout for acquisition opportunities within its core business segments. Since we upgraded KSH to a buy rating on 19 Sep 2012, the share price has been on an absolute tear – and shareholders have enjoyed a total return of 194.9% (versus the STI‟s 3.5% over the same period).

While we continue to believe in management‟s execution ability, we see a diminished scope for earnings growth in FY17 due to the absence of major TOPs next year and an uncertain outlook for the domestic residential market. Our fair value estimate dips to S$0.67 from S$0.71 due to softer residential price assumptions and we downgrade the stock to HOLD on valuation grounds.

Source: OCBC Research - 11 Nov 2015