Brokers’ take: Lim & Tan Securities initiates ‘buy’ on KSH, foresees strong earnings

LIM & Tan Securities on Thursday (Jul 28) initiated coverage on property play KSH Holdings : ER0 0% with a “buy” call and a target price of S$0.46 as it foresees “good earnings visibility over the next 2 years”.

Against KSH’s trading price of S$0.35, the target price represents an upside of 31.4 per cent. Shares were trading flat at S$0.35 as at 11.53 am on Thursday.

Analyst Chan En Jie believes the 42-year-old contractor could ride on a return of the construction up-cycle and a robust order book to end 2022 on a strong note, noting that its construction order book in Singapore of over S$530 million represents a 5-year compound annual growth rate of 9.3 per cent.

“The order book is split 57:43 between private and public sectors, providing them with counter cyclical options during down-cycles and up-cycles,” said Chan.

The analyst highlighted several of KSH’s projects in the pipeline that could bring about a season of good earnings, including the 4 nearly sold-out developmental properties — Affinity @Serangoon, Riverfront Residences, Park Colonial and Rezi 24 — which could bring unrecognised profits of S$17.3 million over the next 2 years.

The reopening of the UK and Japan economies could also provide a “positive surprise” for KSH, which has hospitality exposure via hotel properties owned by associate companies, Chan said.

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Lim & Tan was optimistic on KSH’s strong financials, given its net cash position of S$23.2 million — representing 11.9 per cent of its market capitalisation, which Chan believes is “a rarity amongst its peers whose gearing range between 50-100 per cent”.

“We see further strengthening of its balance sheet over the next year as it collects cash from its joint ventures after attaining temporary occupation permits for the Singapore development projects, as well as cash from its construction projects,” said the analyst.

The brokerage further forecast the company’s FY2023 earnings to grow 21 per cent to S$29.3 million, along with a dividend payout of S$0.022 — representing a dividend yield of 6.4 per cent. Chan opined that this is comparatively higher than the 4 per cent paid out by its competitors.

Downside risks for the company could come in the form of property cooling measures in Singapore and China, mortgage payment boycotts by Chinese homebuyers as well as an unsuccessful retrial regarding its Liang Jing Ming Ju project.