King Wan Corp: 1QFY14 Good Things Are Worth The Wait
(BUY, SGD0.32, TP: SGD0.43)
King Wan’s (KWAN) 1QFY14 was above expectations with revenue at SGD25.1m. Its net profit of SGD2.6m is equivalent to half of the core 1.5-cent dividend. We note that the company’s new development property, Skywoods, should be launched in 2QFY14. KWAN also issued an update on the status of the KTIS IPO, which should go live within six months. Maintain BUY with a TP of SGD0.43 based on a 7% yield.
Strong core operations. KWAN’s mechanical & electrical (M&E) division delivered another strong quarter as revenue surged 94% y-o-y to SGD25.1m at a gross margin of 15.4%. While the y-o-y margin is down from 18.8%, this is a normalised level reflecting fewer high-margin projects. The bottomline expanded by 81% y-o-y on the back of the high volume of work, with net margins stable at 10.2% vs 10.9% a year ago.
Skywoods to launch after lunar seventh month. The Dairy Farm Road project, named Skywoods, is ready to be launched. In deference to Chinese tradition, KWAN is holding off on the launch until the Hungry Ghost Festival is over in September. Thus, we expect property-related income to be factored into its books in the next quarters.
Kaset Thai Industry Sugar (KTIS) has applied for IPO. The Securities and Exchange Commission (SEC) in Thailand has allowed KTIS to begin marketing its shares. Formal approval should be received by 18 Aug, following which KTIS has six months to list the company. This adds another level of certainty to the anticipated IPO as well as the declaration of the 1.5-cent special dividend.
Low P/E IPO actually benefits KWAN. The Thai stock market seems a little shaky, which could lead to KTIS listing at a lower P/E. This has two benefits for KWAN: i) it could end up with a greater stake in KTIS for its SGD50m Thai Associates, and ii) its investment could see more upside potential.
Worth the wait - maintain BUY with a SGD0.43 TP. Although the IPO has been long in coming, the end-goal is in sight. Investors can expect a 9.4% yield, plus capital appreciation as the market compresses the yield. Maintain BUY with a TP of SGD0.43
Publish date: 19/08/13