OCBC - fair value S$0.30
Boost from revenue recognition at Lincoln Suites. KSH Holdings announced 2QFY12 PATMI of S$5.2m, up 24.1% YoY. This came in somewhat above our expectations given the faster-than-expected S$19.8m revenue contribution from the property development segment (Lincoln Suites). 1HFY12 PATMI constituted 59% of our FY12 forecast. For the topline, we saw 2QFY12 revenue come in 24.2% lower YoY at S$54.4m as the fall in construction revenues more than offset the increase from property development. KSH's construction order book stood at ~S$377m as of end 2QFY12, off the back of the latest contract win for Mt Alvernia Hospital. Management also proposed an interim dividend of S$0.01 per share which was in-line with our expectations.
Contract wins, development sales to drive price ahead. Despite faster revenue recognition, we do not expect a large impact on the share price in the short- to mid-term as past development property sales are likely already priced given the visibility from URA sales data. In our view, the pertinent drivers of the share price going forward remain the pace of sales at major projects, such as Cityscape, and the ability of management to secure major construction contract wins. Development property sales would continue to be driven by the Boutiq, Lincoln Suites and Cityscape, which are 71%, 78% and 20% sold as of end-Sep 11 respectively. We do not expect new residential launches from KSH in 2HFY12.
Wins more likely to come from private sector. We forecast KSH to win two to three large contracts (>S$100m) and take its order book to S$600- S$800m in FY12-13, and understand that management is actively tendering for contracts while judiciously keeping to a 10% profit margin hurdle. Given the healthy state of private residential sales over the last six months, we think KSH could replenish its order book meaningfully as developers begin construction on their pipeline of mostly-sold projects. The contract wins are more likely to come from the private sector as we observe the competitive landscape for public BTO projects tenders remains tight despite an increase in demand.
Maintain BUY. Going into 2HFY12, we expect headline numbers from earnings to remain buoyant as the property development projects, Cityscape and Boutiq, begin construction. In addition, of all construction projects adding to the topline currently, only Watten Residences is slated for completion by early 2012. Mt. Alvernia would also start contributing in 3QFY12. We update our assumptions and revise our fair value
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