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Record Earnings At KSH Begets Further Growth?
Tradeable, Tradeable Ideas | 13 June 2014
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By: Lim Si Jie
Articles (169) Profile
  1. KSH achieved record earnings of $44.5 million in FY 2014.
  2. Demand in construction is expected to grow in Singapore, according to BCA.
  3. KSH has already booked $410 million of construction orders in the next two years.

Company Profile
KSH is a construction, property development and property management group with operations in Singapore, Malaysia and the PRC. KSH principal activities are as follows:

1. Construction in Singapore and Malaysia;

2. Property development and property management in the PRC.

End Of Financial Year 2014

The Group had a total revenue of $324.5 million for the financial year ended 31 March 2014 (“FY2014″), an increase of $92.9 million (40.1 percent) compared to $231.6 million registered in the corresponding financial year ended 31 March 2013. This increase was mainly due to the increase in revenue from the construction business of $79.6 million (38.6 percent) from $206.1 million in FY2013 to $285.7 million in FY2014.

In addition, revenue from sales of development properties increased by $12.5 million (62.9 percent) from S$20.0 million in FY2013 to $32.5 million in FY2014, while revenue from rental income of investment properties increased by $0.8 million (13.5 percent) from $5.5 million in FY2013 to $6.3 million in FY2014.

Increasing Construction Costs
Finance costs and other operating costs are expected to increase due to higher interest rates and increase in costs such as rental, utilities, transportation and etc.

The main bulk of KSH’s cost of sales is its construction cost. Construction costs are likely to continue on the uptrend as a result of rising cost pressures due to the government’s progressive tightening of manpower policies, more stringent regulatory controls on construction industries and increases to construction material costs.

As KSH is unable to retain a larger portion of revenue if cost of sale increases, it could hurt KSH in the long run. Investors might want to monitor the sector news while being invested in KSH to ensure that rising cost of sale is within expectations. If cost of sale jumps above expectations, investors might want to relook whether KSH margins are heavily impacted and whether it is still worth keeping KSH in their portfolio.

Looking Ahead
According to Ministry of Trade and Industry (MTI), the construction sector expanded by 6.7 percent on a year-on-year basis, slower than 7.3 percent growth on the preceding quarter. The moderation in growth was largely due to weakness in construction activities by the private sector. Construction demand from the private sector is projected to soften as residential property demand and prices has continued to moderate on the back of the cumulative effects of various cooling measures.

The Building and Construction Authority (“BCA”) forecasts that total construction demand in year 2014 is likely to be between $31.0 billion and $38.0 billion due to the expansion in the public sector demand as well as stronger institutional and civil engineering construction works.

This is a positive point for KSH. Stronger demand for construction works will drive KSH revenue in the upcoming FY higher. As the bulk of KSH’s business is tied to construction in Singapore, the positive outlook on the sector will certainly boost KSH’s revenue and net profits.

Construction Order Books
KSH has a construction order book of more than $410.0 million as at March 31, 2014 which will contribute to the Group’s financial performance over the next two years

Another point which I like about KSH is its ability to collect its operating income as positive cash flow. Businesses record revenue the moment a product or service has been rendered and the other party agrees to pay a certain amount for the product or service. However, recording the revenue does not mean it can be collected. Some customers may default on payment.

KSH does not appear to face any problem in this area as its cash flow from operations is comparable to operating income. This means that most of the operating income are successfully collected as payment from its customers.

A Stock For The Holding On For The Long Run
Given the smooth path ahead for KSH, taking a long position on KSH should be on the mind of investors. However, as mentioned before, some diligence in monitoring of construction cost is still required. This is to ensure that KSH’s share prices are not affected once margins are adversely affected.

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Si Jie is no stranger to investing having started his journey at a young age. He is heavily influenced by acclaimed investors such as Benjamin Graham, Peter Lynch, and John Rothchild.

Please click here for more information about this author.

KSH Hldgs  0.465 +0.005 +1.09%   
Business: [FY19 Turnover] Construction (97.1%), property development and investment (2.9%).

Insight: May-19, FY19 revenue rose 51.4% largely due to sig... Read More

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