Excerpts from analyst's report
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OUR VIEW
• Expect an exceptional 4QFY15. Keong Hong’s 20%-owned Twin Waterfalls executive condominium, which was fully sold has obtained TOP. We expect Keong Hong to recognise property development profit of S$17.5m (or S$0.075/share) from this project in 4QFY15.
• Solid balance sheet with rising net cash. As at 30 Jun 15, Keong Hong had net cash of about S$1.4m. Following the TOP of Twin Waterfalls, we expect Keong Hong to receive the remaining cash proceeds from the sale of the project, which we estimate at S$35m (or S$0.15/share), further boosting its balance sheet. Keong Hong could receive cash proceeds of another S$30m (or S$0.13/share) after the TOP of Skypark Residences in FY16.
• Potential bumper dividends in the next two years? With the bumper profits and huge cash proceeds from the TOP of Twin Waterfalls, we believe there is potential for a bumper dividend. Keong Hong paid out 18-27% of its earnings as dividends in the last three years. Assuming it pays out 25% of its earnings in FY15, this translates into a dividend yield of 8.7%. For FY16, investors can look to another year of sustained profit with the expected TOP of Skypark Residences (81% sold), which we expect Keong Hong to recognise an estimated property development profit of S$14.9m (or S$0.064/share).
• Replenished orderbook. As at 30 Jun 15, Keong Hong had a construction orderbook of S$423m. It has also secured a S$107.5m contract in Aug 15 for the construction of a 20-storey medical building at Victoria Street, which is expected to be fully completed by Aug 17.
• Raise our net profit forecasts for FY15-17 by 3-20%. We adjust our revenue (to factor in the timing for recognising revenue from construction contracts) and raise our gross profit margin assumptions for FY15-17 as Keong Hong has demonstrated their ability to sustain margins amid a competitive industry landscape.
We have not included the recurrent income contribution from Keong Hong’s hotel investments at the former Joo Chiat Police Station and Maldives which is expected to be completed from FY16 to FY17. As such there may be potential upside to our earnings forecast.
Full report here.
