Fair value S$0.50
ORDER BOOK UP 45%
• New win to boost book by 45%
• Still tendering for contracts
• One of our top small-cap picks
New win to boost construction order book by 45%
KSH Holdings Limited (KSH) recently reported that it has received the Letter of Acceptance for the main contract works for Q Bay Residences at Tampines. This contract, awarded by a consortium comprising Fraser Centrepoint, Far East Organization and Sekisui House, is worth a hefty S$142m and is one of the largest won by KSH in recent years. As a result of this, we estimate KSH’s construction order book to increase by a whooping 45% to S$460m. Construction for the project would commence in Apr 2013 for a total length of 33 months. With an anticipated net profit margin above 10%, this would contribute more than S$14m of net profits and add significant incremental visibility to KSH’s construction earnings ahead.
Order book replenishment beating 2013 expectations
We understand from management that its construction unit has the capacity to handle up to
S$700m in its order book and that KSH is still in the midst of actively tendering for contracts. We had forecast for KSH to win an estimated S$170m in contracts in 2013, and it appears the company would likely exceed expectations handily.
One of our top value picks in the small-cap universe
We continue to see significant fundamental value in KSH’s share price, even given our conservative sum-of-the-parts valuation made up of 1) the construction segment valued at 3x FY13 segment earnings and 2) the property development segment valued at a 50% discount to RNAV. With a good track record of execution from management and a solid earnings growth profile (YoY earnings growth forecasted at 68% in FY13 and 73% in FY14), KSH remains one of our top value picks in the small-cap universe. Potential catalysts ahead include new contract wins and the anticipated launch of Hong Leong Gardens in 1H13. Maintain BUY with an unchanged fair value estimate of S$0.50.
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