The latest property cooling measure has led OCBC Investment Research to lower the fair value of KSH Holdings by only 4 cents a share. Read more below. Meantime, KSH's just-released FY18 annual report shows that the a NTU professor, Yip Sau Leung, is its No.5 shareholder with 28.7 m shares. Prof Yip was featured in our 2014 story: 


Excerpts from OCBC Investment Research report


Analysts: Deborah Ong & Andy Wong, CFA.

Construction: Already ~S$18b of successful en bloc transactions
Following the ABSD announcement after market on 5 Jul, KSH Holdings’ (KSHH) stock price fell 4.7% from S$0.645 to close at S$0.615 on 13 Jul.

ChooCheeOnn7.18KSH executive chairman Choo Chee Onn. Photo: CompanyKSHH is currently trading -20.1% YTD, versus the -8.6% in the FSTREH and –2.5% for the STI, and is currently 33.9% below its peak price of S$0.93 as at 31 Oct 2017’s close.

While we do see the latest round of cooling measures as effective curbs to new en-bloc sales in the near-term, we are still optimistic about the S$8.6b of already successful en-bloc transactions in 2017 and the additional >S$9b of transactions YTD 2018.

We estimate that the bulk of en bloc redevelopments have yet to award construction contracts as they take time to apply for lease top-ups and seek approvals for the development of the site.

For instance, as of 31 Mar 2018, KSHH had only been awarded a letter of intent for the Rio Casa redevelopment, one of the first en bloc transactions in 2017 – with time still needed to obtain the necessary approvals.



Besides, order book in hand is very strong

KSH

Share price: 
62 c

Fair value:
94 c


"We believe the predictive value of the order book size is high on the revenue of the following six quarters, and expect the construction segment to turn a corner in 2018."

-- OCBC Investment Research

Even disregarding this pipeline of future projects, the group’s construction order book currently stands at ~S$542m (including the Rio Casa LOI), one of the highest it has been as at the end of a quarter since 1Q14 (Exhibit 4).

Given the slew of en bloc redevelopments in the pipeline as well as a healthy stream of public sector projects this year, we believe that the group’s construction segment has more quarters of strong earnings growth in store – growth which has yet to be priced in.

Still primarily a construction firm
KSHH is still primarily a player within the construction space, and we continue to see upside to its price as of 13 Jul 2018.

Previously, we did note that KSHH planned to launch four SG residential projects in 2018 with associates and JVs, with the group’s effective share in these projects translating into an aggregate of ~800 additional units.

With the new cooling measures, we lower our margin assumptions for its property development projects and our fair value decreases from S$0.98 to S$0.94, with a significant upside from 13 Jul’s close. Reiterate BUY on KSHH.


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