• Down 5% after ABSD announcement
• Still primarily a construction play
• Bright prospects remain for sector

Construction: Already ~S$18b of Successful En Bloc Transactions

Following the ABSD announcement after market on 5 Jul, KSH Holdings’ (KSHH) stock price fell 4.7% from S$0.645 to close at S$0.615 on 13 Jul. KSHH is currently trading -20.1% YTD, versus the -8.6% in the FSTREH and –2.5% for the STI, and is currently 33.9% below its peak price of S$0.93 as at 31 Oct 2017’s close.

While we do see the latest round of cooling measures as effective curbs to new en-bloc sales in the near-term, we are still optimistic about the S$8.6b of already successful en-bloc transactions in 2017 and the additional >S$9b of transactions YTD 2018. We estimate that the bulk of en bloc redevelopments have yet to award construction contracts as they take time to apply for lease top-ups and seek approvals for the development of the site.

For instance, as of 31 Mar 2018, KSHH had only been awarded a letter of intent for the Rio Casa redevelopment, one of the first en bloc transactions in 2017 – with time still needed to obtain the necessary approvals.

Besides, Order Book in Hand Is Very Strong

Even disregarding this pipeline of future projects, the group’s construction order book currently stands at ~S$542m (including the Rio Casa LOI), one of the highest it has been as at the end of a quarter since 1Q14 (Exhibit 4). We believe the predictive value of the order book size is high on the revenue of the following six quarters, and expect the construction segment to turn a corner in 2018.

Given the slew of en bloc redevelopments in the pipeline as well as a healthy stream of public sector projects this year, we believe that the group’s construction segment has more quarters of strong earnings growth in store – growth which has yet to be priced in.

Still Primarily a Construction Firm

KSHH is still primarily a player within the construction space, and we continue to see upside to its price as of 13 Jul 2018. Previously, we did note that KSHH planned to launch four SG residential projects in 2018 with associates and JVs, with the group’s effective share in these projects translating into an aggregate of ~800 additional units.

With the new cooling measures, we lower our margin assumptions for its property development projects and our fair value decreases from S$0.98 to S$0.94, with a 52.8% upside from 13 Jul’s close. Reiterate BUY on KSHH.

Source: OCBC Research - 16 Jul 2018