FY13E earnings outlook intact
We recently met with KSH management and keep intact our FY13E and FY14E forecasts at S$30.7m (up 68% YoY) and S$53.0m (up 72% YoY), respectively, which are underpinned by progress billings for already-sold projects. We estimate its property development portfolio of 13 Singapore projects to yield S$128m of yet unrecognized profits ahead, of which S$54m (42%) is already launched and sold. For the construction segment, order book replenishment now cumulates to S$202m in 2013 to date – somewhat above forecast and already exceeding the S$163m total last year.
Beijing condo likely to sustain earnings growth
Beyond FY14, we see earnings growth momentum continuing due to the launch of its 45%-owned Beijing condo this year, Liang Jing Ming Ju Phase 4 (LJMJ), which would contribute an estimated S$23m net earnings upon TOP. LJMJ has a NSA of 31.4k sqm residential and 8.1k sqm retail shops, with average breakeven and selling prices at RMB 8k psm and RMB 20k psm respectively. We estimate a 5.5 S-cents accretion to RNAV, which we now incorporate into our valuation given adequate operational visibility.
Focus on Gaobeidan township execution
KSH also has a 30.6% effective stake in a township development at Gaobeidian (GBD) New Town – 30 mins away from Beijing city via at a newly completed high-speed train line. Total investment of the 533- hectare township is estimated at RMB16b and the JV is currently focused on launching Phase 1 which is a residential project. GDB would potentially yield S$195m net profits to KSH and accrete a hefty 30 to 35 S-cents to RNAV. However, we currently value this project at zero accretion in our model until more visibility regarding execution is gained.
Expect strong FY13E earnings ahead
For upcoming FY13E results, we expect to see final dividends in the range of 0.5 – 1.5 S-cents and possibly a bonus share issue to alleviate low trading liquidity currently. Maintain BUY with an increased fair value estimate of S$0.73, versus S$0.62 previously, as we now incorporate accretion from LJMJ into the property segment’s RNAV and raise our PE multiple for the construction segment from 4x to 5x, in line with peers trading at 5-7 times.
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