KSH Holdings Ltd - Possible order-book replenishment ahead (OCBC)

Maintain HOLD

Previous Rating: HOLD

Current Price: S$0.245

Fair Value: S$0.31

FY11 public contracts value nearer top range. We believe that the pipeline of public contracts continues to be strong in FY11 with BCA (Building and Construction Authority) forecasting total public contract value at S$12-$15b from S$8.1b last year. Now that the HDB has ramped up its projected FY11 BTO (Build-To-Order) supply to 25k new units, we think total public contracts would likely fall closer to the high end of the forecast. We could also see the pace of contract wins in 3Q11 picking up somewhat; the number of public contracts above S$40m in value is expected to increase from 16 in 3Q11 from 12 in 2Q11, as guided by the BCA.

Continued contract activity in the sector. Over 2Q11 so far, we saw continued activity in the construction space. Lian Beng Group recently secured an S$128.8m construction contract to build Waterfront Isle at Bedok Reservoir, in addition to another contract secured for Hedges Park earlier this month. Wee Hur Construction also announced this month that it had been awarded an S$109m contract for a public housing works project in Yishun. We understand that KSH management is currently actively tendering for contracts in both the private sector and public housing space. As such, we expect possible order-book replenishment in 3Q-4Q11. KSH has a current order-book of S$406m with $146m already recognized as of 31 Mar 2011.

Decent sales at development projects. Decent sales were reported at KSH's residential projects in May. 14 units were sold at The Boutiq at a $2,394 ASP, bringing total units sold to 64 out of 130 units in total. Also, five and six units were sold at Lincoln Suites and Cityscape@Farrer Park respectively in May. Lincoln Suites is now more than 73% sold while Cityscape@Farrer is at 20% sold. We note that prices have generally held steady at all three developments.

Maintain NEUTRAL at 31 cents. We continue to believe that there is significant value in KSH but also see headwinds from a slowdown in private construction demand ahead. A meaningful push into HDB housing projects may help boost the orderbook but profit margins for these projects remain uncertain. When these clouds clear and more clarity is available for development project sales, especially for Cityscape@Farrer Park, we could see a re-rating of the share price. But for now, we maintain a HOLD rating on KSH with a fair value estimate of 31 cents.