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Broker's take: UOB upgrades KSH to "buy", cites profit potential of China project
ANALYSTS at UOB Kay Hian have upgraded their call on KSH Holdings to "buy" and increased the target price of the property firm's shares from S$0.87 to S$1.08.
UOB Kay Hian stated that "with the recent share price drop, it appears that the wave of weakness in Singapore's construction sector has been experiencing is now priced in".
Moreover, the analysts highlighted that this may be buoyed by signs of recovery in the construction industry with the Building and Construction Authority expecting the value of construction contracts to be awarded in 2018 to fall between S$26 billion and S$31 billion, up from S$24.5billion in its preliminary 2017 estimates.
Despite concerns that KSH's 22.5 per cent owned GaoBeiDian project in China might perform below expectations, UOB Kay Hian expects the cheap land cost for the project to continue to be "a key profit driver" for KSH over the project's 10-year development cycle.
On the land acqusition front, the analysts also highlighted KSH's healthy landbank may enable its construction and property development portfolios "to ride on Singapore's property upcycle".
However, UOB Kay Hian identified upside risks for the Singapore construction sector, risks to the GaoBeiDian project, as well as KSH's weak result in its current fiscal year and its lower profit estimates, as key risks to their valuation.
KSH shares were trading S$0.02, or 2.6 per cent down, at S$0.74 as at 4.30pm on Thursday.