Company Update, 7 April 2014
King Wan Corp (KWAN SP)
Buy (Maintained)
Energy & Petrochemicals - Oil & Gas Services Market Cap: USD83.0m
Target Price: Price:
SGD0.43 SGD0.30 Macro Risks
Time To Double The Dividend
Growth Value
King Wan Corp (KWAN SP) Relative to Straits Times Index (RHS)
0.36
125
0.34
121
0.32
116
0.30
112
0.28
108
0.26
103
0.24
99
0.22
94
0.20 20 18 16 14 12 10 8 6 4 2
90
Feb-14
Dec-13
Oct-13
Aug-13
Jun-13
Source: Bloomberg
Avg Turnover (SGD/USD) Cons. Upside (%) Upside (%) 52-wk Price low/high (SGD) Free float (%) Shareholders (%) Siriviriyakul Ganoktip Chua Kim Hua Chua Eng Eng
0.06m/0.05m 43.3 42.9 0.26 - 0.34 48
22.0 12.6 10.5
Shariah compliant
Kaset Thai Industry Sugar (Kaset Thai)’s IPO to go ahead. The Bangkok Post published an article on 4 April that stated that Kaset Thai plans to float 957.83m IPO shares from April 21-23 to raise funds for its expansion. This is the key catalyst that investors have been waiting for and comes as a positive surprise after the recent news that the IPO deadline had been pushed back to Aug 2014. IPO price not confirmed but King Wan will benefit either way. If the IPO is priced high, King Wan will be able to offload its stake in its Thai associate at an attractive price during the IPO period. If the listing multiple is on the low side, the company will receive more shares in Kaset Thai, as the value of its stake is fixed at c.SGD50m. King Wan will, thus, enjoy upside potential plus possible yield on its Kaset Thai shares. Either way, the company’s shareholders will benefit from the upcoming IPO. Raising dividend forecast for FY14 final dividend. We expect King Wan to liquidate part of its Kaset Thai stake regardless of the IPO valuation. This will result in sufficient cash inflow to pay a higher dividend. We believe the potential final dividend for FY14 is in the 1.5-2 cents range, but estimate it at 1.5 cents to be on the conservative side. Time to double the dividend, maintain BUY and SGD0.43 TP. We continue to expect King Wan to pay a 3 cents dividend every year from FY15 onwards, with 1.5 cents from its core businesses and 1.5 cents from the continued liquidation of its Kaset Thai stake. This raises the foreseeable sustainable yield to 10%. Maintain BUY and SGD0.43 TP, which is based on a 7% yield. Mar-11
Mar-12
Mar-13
Mar-14F
Mar-15F
Total turnover (SGDm)
70.4
57.2
66.3
85.5
89.7
Reported net profit (SGDm)
14.5
14.0
7.1
6.0
35.3
Recurring net profit (SGDm)
10.2
13.9
7.1
6.0
Forecasts and Valuations
8.2
7.9
36.5
(49.2)
(15.3)
37.1
Recurring EPS (SGD)
0.03
0.04
0.02
0.02
0.02
DPS (SGD)
0.01
0.02
0.02
0.02
0.03
Lee Yue Jer +65 6232 3898
Recurring P/E (x)
10.3
7.5
14.9
17.5
12.8
[email protected]
P/B (x)
1.40
1.26
1.23
1.22
0.92
P/CF (x)
15.9
12.4
8.1
13.0
6.8
4.3
5.0
5.0
6.7
10.0
6.5
5.5
9.8
12.8
6.9
20.8
17.7
8.4
7.0
35.4
Recurring net profit growth (%)
Terence Wong CFA 65 6232 3896
[email protected]
Dividend Yield (%) EV/EBITDA (x) Return on average equity (%) Net debt to equity (%)
net cash
Our vs consensus EPS (%)
net cash
net cash
net cash (83.7)
net cash 193.1
Source: Company data, OSK-DMG estimates
See important disclosures at the end of this report
2 . 2 0 . 2
0 0 . 3 0 0 An article in last Friday’s Bangkok Post stated that Kaset Thai will be . 0 listing on 21-23 April. This means that King Wan will be able to realise 0 part of the value of its Thai holdings and begin paying a special 0 dividend. We raise our final dividend (to be declared in May) forecast to 1.5 cents and maintain our expectation for a total dividend of 3 cents in FY15, doubling the yield to 10%. Maintain BUY and SGD0.43 TP.
Apr-13
Vol m
Price Close
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1
King Wan Corp (KWAN SP) 7 April 2014
Financial Exhibits Profit & Loss (SGDm)
Mar-11
Mar-12
Mar-13
Mar-14F
Total turnover
70
57
66
85
90
Cost of sales
(59)
(44)
(55)
(73)
(76)
Gross profit
11
14
11
13
13
Gen & admin expenses
(9)
(8)
(6)
(8)
(7)
Operating profit
3
6
5
5
6
Operating EBITDA
4
7
6
6
7
(1)
(1)
(1)
(1)
(1)
Operating EBIT
3
6
5
5
6
Net income from investments
7
7
0
(0)
(1)
Depreciation of fixed assets
Other recurring income Interest expense Exceptional income - net
Mar-15F
2
3
3
3
3
(1)
(0)
(0)
(0)
(0)
5
0
Pre-tax profit
16
16
9
8
29
Taxation
(1)
(2)
(2)
(2)
(2)
Profit after tax & minorities
14
14
7
6
35
Reported net profit
14
14
7
6
35
Recurring net profit
10
14
7
6
8
37
Source: Company data, OSK-DMG estimates
Cash flow (SGDm)
Mar-11
Mar-12
Mar-13
Mar-14F
Mar-15F
Operating profit
3
6
5
5
6
Depreciation & amortisation
1
1
1
1
1
(2)
(5)
3
(3)
(0)
Change in working capital Other operating cash flow
6
7
6
7
11
Operating cash flow
8
10
15
10
18
Interest paid
(1)
(0)
(0)
(0)
(0)
Tax paid
(1)
(1)
(2)
(2)
(2)
7
8
13
8
15
Capex
(1)
(1)
(0)
(1)
(1)
Other investing cash flow
11
9
(24)
(6)
33
Cash flow from investing activities
10
8
(24)
(7)
32
Dividends paid
(3)
(5)
(5)
(5)
Increase in debt
(2)
(1)
10
2
-
Other financing cash flow
(0)
(0)
(0)
(0)
-
Cash flow from financing activities
(4)
(6)
4
(3)
(7)
Cash at beginning of period
13
23
29
17
10
Total cash generated
13
11
(7)
(2)
41
Implied cash at end of period
26
35
22
15
51
Cash flow from operations
(7)
Source: Company data, OSK-DMG estimates
See important disclosures at the end of this report
2
King Wan Corp (KWAN SP) 7 April 2014
Financial Exhibits Balance Sheet (SGDm)
Mar-11
Mar-12
Mar-13
Mar-14F
Mar-15F
23
29
38
31
70
1
1
1
1
1
Accounts receivable
15
17
19
26
27
Other current assets
10
20
1
1
1
Total current assets
49
67
59
59
99
Total investments
46
34
12
4
(6)
6
6
5
5
5
49
63
63
Total cash and equivalents Inventories
Tangible fixed assets Total other assets Total non-current assets
-
-
52
40
66
73
63
100
107
126
132
162
Short-term debt
7
5
8
11
11
Accounts payable
9
9
22
26
27
Other current liabilities
8
8
11
10
10
24
23
41
46
Total long-term debt
2
1
Other liabilities
0
0
0
0
Total non-current liabilities
2
1
0
0
0
Total liabilities
26
23
41
46
48
Share capital
47
47
47
47
47
Retained earnings reserve
28
37
40
41
69
0
(1)
(2)
(2)
75
83
85
86
114
Total assets
Total current liabilities
Other reserves Shareholders' equity Total equity
-
-
47 0
(2)
75
83
85
86
114
100
107
126
132
162
Mar-11
Mar-12
Mar-13
Mar-14F
Mar-15F
(0.2)
(18.7)
15.9
28.9
5.0
114.0
126.9
(14.5)
1.0
23.1
Net profit growth (%)
52.7
(3.3)
(49.7)
(15.3)
491.7
EPS growth (%)
52.7
(3.3)
(49.7)
(15.3)
491.7
Bv per share growth (%)
16.2
11.3
1.8
0.9
33.1
Operating margin (%)
3.7
10.3
7.6
6.0
7.0
Net profit margin (%)
20.6
24.5
10.6
7.0
39.4
Return on average assets (%)
14.5
13.5
6.1
4.6
24.1
Return on average equity (%)
20.8
17.7
8.4
7.0
35.4
(20.1)
(27.4)
(36.2)
(24.3)
(51.9)
DPS
0.01
0.02
0.02
0.02
0.03
Recurrent cash flow per share
0.02
0.02
0.04
0.02
0.04
Total liabilities & equity Source: Company data, OSK-DMG estimates
Key Ratios (SGD) Revenue growth (%) Operating profit growth (%)
Net debt to equity (%)
Source: Company data, OSK-DMG estimates
See important disclosures at the end of this report
3
King Wan Corp (KWAN SP) 7 April 2014
SWOT Analysis Strong core mechanical and electrical business that is diversified across multiple investments in industries
The construction market is cyclical
High cash flow allows for dividend increases. The company has a track record of raising dividends
New entrants are possible but risk is mitigated by high qualification requirements
The construction market is set to boom, spurred by the Government’s housing initiatives Post crisis, many assets in various industries are at bargain levels. It has a good track record of making longterm alternative investments
Its non-core businesses are a cause for concern among some investors
P/E (x) vs EPS growth
P/BV (x) vs ROAE
20
600%
1.6
40%
18
530%
1.4
35%
16
460%
14
390%
1.2
30% 25%
0.8
20%
180%
0.6
15%
6
110%
4
40%
0.4
10% 5% 0%
P/E (x) (lhs)
EPS growth (rhs)
Source: Company data, OSK-DMG estimates
Jan-11
Jan-15
0.0
Jan-14
-100%
Jan-13
0
Jan-12
-30%
Jan-11
2
0.2
P/B (x) (lhs)
Jan-15
250%
8
Jan-14
10
Jan-13
320%
Jan-12
12
1.0
Return on average equity (rhs)
Source: Company data, OSK-DMG estimates
Company Profile King Wan, the market leader in mechanical and electrical services in Singapore’s construction industry, is also involved in the high-end property development segment. It owns several associate companies in various industries, building on its long track record of highlyprofitable alternative investments. It recently sold its Thai associates to Kaset Thai Industry Sugar, which is headed for an IPO this year.
See important disclosures at the end of this report
4
King Wan Corp (KWAN SP) 7 April 2014
Recommendation Chart Price Close 0.43
Recommendations & Target Price
0.40
0.30
NR
0.35
0.25 0.20 0.15 0.10
0.05 Buy 0.00 Apr-09
Neutral
Sell
Jul-10
Trading Buy
Oct-11
Take Profit
Not Rated
Jan-13
Source: OSK-DMG estimates, Bloomberg Date
Recommendation
2014-02-13
Buy
Target Price Price 0.43
0.28
2013-11-15
Buy
0.43
0.30
2013-08-16
Buy
0.43
0.31
2013-06-11
Buy
0.43
0.31
2013-05-30
Buy
0.43
0.32
2013-05-23
Buy
0.40
0.30
2013-02-07
Buy
0.40
0.30
2013-02-04
Buy
0.40
0.30
Source: OSK-DMG estimates, Bloomberg
See important disclosures at the end of this report
5
RHB Guide to Investment Ratings DMG & Partners Research Guide to Investment Ratings Buy: Share price may exceed 10% over the next 12 months Trading Buy: Share may10% exceed over 12 themonths next 3 months, however longer-term outlook remains uncertain Buy: Share price mayprice exceed over15% the next Neutral: Buy: ShareShare price price may fall within the 15% rangeover of +/the next 12 months Trading may exceed the10% nextover 3 months, however longer-term outlook remains uncertain Take Profit: Target been attained. accumulate lower Neutral: Share priceprice may has fall within the rangeLook of +/-to10% over theatnext 12 levels months Sell: may fall has by more 10% over next 12 months Take Share Profit:price Target price beenthan attained. 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