King Wan Corp: Shareholders Rewarded For Wait
(BUY, SGD0.29, TP: SGD0.43)
KWAN’s 2QFY14 PATMI jumped 97% y-o-y to SGD2m. The company announced a 0.5-cent dividend that comprises 33% of our core 1.5-cent estimate. Shareholders are being paid an attractive 5.2% yield to wait for KTIS’ listing, after which we expect an annual 1.5-cent special dividend. This will boost KWAN’s sustainable yield above 10%.
Maintain BUY, with our SGD0.43 TP unchanged.
Core operations strengthening. KWAN’s mechanical and electrical (M&E) business continues to deliver, posting a 93% y-o-y increase in 2QFY14 revenue to SGD24.5m, while the gross margin of 16.2% was a tad higher than 1QFY14’s 15.4%. PATMI climbed 97% y-o-y to SGD2m.
Core dividend lifted by large orderbook. True to form, KWAN declared an interim dividend of 0.5 cents. We continue to expect a 1 cent core final dividend for 4Q14. Its total 1.5-cent dividend requires core earnings of only SGD5.2m, which KWAN will comfortably exceed in FY14, bolstered by its SGD147m-strong orderbook stretching up to CY16.
Shareholders being paid 5.2% to wait. The stock’s core yield is 5.2%, which we see as sufficient incentive for shareholders to stick with KWAN while waiting for the listing of Kaset Thai Industry Sugar (KTIS).
KTIS listing likely in Feb 2014. In view of the political turmoil in Thailand, we see KTIS being listed around the auspicious Chinese New Year period in CY14. This will coincide with KWAN’s 4QFY14, during which we expect the company to liquidate much of its stake in KTIS and return part of the cash in the form of a 1.5-cent special dividend to shareholders. This will boost the stock’s yield to more than 10%.
Maintain BUY, with SGD0.43 TP. KWAN is a well-run company that dominates Singapore’s M&E space. Its earnings are well supported by its core business, as well as its property development associates.
Management has investment acumen and has shown a willingness to distribute dividends. Our SGD0.43 TP is based on a 7% dividend yield, which includes the forthcoming special dividend. Maintain BUY.
Publish date: 18/11/13