Keong Hong Holdings – Undervalued?

KeongHong40Keong Hong Holdings Limited (5TT.SI) is a Singapore based investment holding company. The group offers construction services and develops residential, commercial, industrial property to both the private and the public sector. Aside from residential and hotel construction Keong Hong targets on the institutional and healthcare sector in order to have a well-diversified range of construction projects. The portfolio includes projects such as IBIS Hotel, Singapore Institute of Management, Sime Darby Performance Centre, Martin Place Residences, The Parvis, 8@Woodleigh and The Residence Maldives and Kooddoo Airport in Maldives. Keong Hong is founded 1983 in Singapore and listed since 2011 on the Singapore Exchange.

The first six months of Keong Hong’s fiscal year 2016 shows a mixed picture. Despite a decrease in revenues of 11.4% during the first six months ending March 2016 the gross profit increased by 27.8% compared to the period a year ago. This increase came from higher gross margins achieved in the second quarter and retention sums received in the first quarter from completed projects. Gross profit margin increased to 14.4% compared to 10.0% a year ago.

The outlook for Singapore’s construction sector in 2016 remains challenging. The latest launch of the 628-unit Parc Life executive condominiums in Singapore, a joint development by Frasers Centrepoint Limited and Keong Hong Holdings, only sold 51 units. Keong Hong aims to set priority on exploring more overseas opportunities and to increase its presence in the institutional and healthcare sector, aside from residential and hotel construction. Overseas investment opportunities and strategic investments will bring further growth and continued sustainability in the group’s business. The hotel development sector in particular offers interesting proposition as tourism continues to be a major contributor to the global economy. Aside from the Maldives, which remains an important market for Keon Hong, the group seeks opportunities in Japan, Australia, Vietnam and Malaysia. The group explores also opportunities with mergers and acquisitions, partnerships and strategic alliances. As at March, Keong Hong’s order book stood at approximately 358.5m SGD, providing the group with a sustainable flow of activities until the end of 2018 fiscal year.

The fundamental data shows some very strong financial ratios. A price-to-earning ratio of only 2.6, a price-to-book ratio of just 0.9, a price-to-cash flow ratio of 2.4 and a return on equity of more than 40% indicates an undervalued company. Noteworthy also latest dividend yield of almost 10%, since very few companies in the construction service industry pay dividends at all. The stock has gained more than 130% since its first listing in 2011, but has hardly advanced since a year. We expect the group to follow its strategic direction to strengthen its internal operations and efficiencies and to surprise soon with new projects in the Asia Pacific region. This should also boost the stock to continue its growth path. The company is worth to be kept on the watchlist.

AIS Rating: ★★★☆☆


 2012  2013  2014  2015  2016E
 EPS (SGD cents) 14.9 12.2 8.2  16 15
 Change  -85% -18%  -33%  95% -6%
 P/E  P/E
 P/B  P/CF  Equity
 ROE  Debt/
 2.6  21.4  0.9  2.5  35%  41%  38%  1.85%

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