• 3QFY16 results in line
• S$286m of progress billings to be booked
• Upgrade to BUY

3QFY16 results broadly within expectations

KSH’s 3QFY16 PATMI increased 21.3% YoY to S$13.8m mostly due to higher construction gross margins (up 6.1 ppt to 21.5%), stronger contributions from associates and JVs, and a lower tax rate over the quarter. The topline for the quarter fell 9.5% YoY to S$54.8m, however, as construction revenues fell 9.0% YoY to S$52.9m. Other operating income similarly fell 18.8% YoY to S$2.3m over the quarter mainly due to lower foreign exchange gains, partially offset by an increase in interest income, income from investment properties and a construction related business. Overall, we judge this set of results to be within expectations and 9MFY16 PATMI now cumulates to 80.9% of our full year forecast.

More than 85% of launched residential units in portfolio already sold

Management reported that more than 85% of the launched residential units in its portfolio have been sold, with approximately S$286.4m in attributable progress billings to be recognized ahead, and that construction for the Phase 1 development of the Gaobeidian township project in China is well on track. The order book for the group’s core construction segment remains healthy at S$270m; KSH indicates that it is cognizant of rising costs in the construction space and is taking a pro-active approach in utilizing technology and innovation to improve productivity and increase the utilization rate of their equipment.

See value in current share price; upgrade to BUY

KSH’s balance sheet continues to be robust with a net cash position and a cash balance of S$162.0m. Since we downgraded the stock to a hold rating on 11 Nov 2015, the price has corrected 11.9% (on an ex-adjusted basis) and we believe there is value in the stock at current levels. We upgrade the stock to a BUY. To account for the 1-for-10 bonus share issue in Dec, our fair value estimate adjusts to S$0.61 from S$0.67 previously.

Source: OCBC Research - 11 Feb 2016