OCBC drops coverage on KSH Holdings post FY19 earnings miss

SINGAPORE (June 3): OCBC Investment Research is ceasing coverage on KSH Holdings, citing “reallocation to resources” after the construction group’s latest set of financial results missed expectations on the back of poorer-than-expected margins.

To recap, KSH last week posted 74.8% lower FY19 earnings of $7.7 million after factoring in International Financial Reporting Standards (IFRS) changes – without which OCBC estimates PATMI would have been $12 million higher, or 63% of the research house’s initial full-year forecast.

The bottomline miss comes due to higher construction costs and lower profit from operations before share of results from associates and joint ventures (JVs), on top of a nine percentage-point y-o-y drop in FY19 operating profit margins to 11%, says analyst Deborah Ong in a Monday note.

Looking ahead, Ong is expecting KSH’s share of results from associates and JVs to continue reporting losses over the next two to two and a half years, as construction progress continues in the early stage of their development projects.

Nonetheless, she says the group has seen “decent sales” for its four residential property developments launched over FY19, namely: Affinity@Serangoon, Riverfront Residences, Park Colonial and Rezi 24.

“Collectively, the projects have sold >2,200 units with positive margins based on options issued to-date. We expect operating margins for construction projects to improve moderately with time. As at April 2019, the order book stands above $489 million. Dividends of 2.2 cents were declared for FY19, which translates to a 4.9% dividend yield against 31 May’s closing price,” notes Ong.

As at 11:02am, shares in KSH are trading 1 cent lower at 44 cents.