Q Bay Residences to boost KSH order book by 45%

A hefty $460m will go to its pockets.

According to OCBC, KSH Holdings Limited (KSH) recently reported that it has received the Letter of Acceptance for the main contract works for Q Bay Residences at Tampines.

This contract, awarded by a consortium comprising Fraser Centrepoint, Far East Organization and Sekisui House, is worth a hefty S$142m and is one of the largest won by KSH in recent years.

As a result of this, we estimate KSH’s construction order book to increase by a whooping 45% to S$460m. Construction for the project would commence in Apr 2013 for a total length of 33 months and, with an anticipated net profit margin above 10%, would contribute more than S$14m of net profits, adding significant incremental visibility to KSH’s construction earnings ahead.

Here's more from OCBC:

We understand from management that its construction unit has the capacity to handle up to S$700m in its order book and that KSH is still in the midst of actively tendering for contracts.

We had forecast for KSH to win an estimated S$170m in contracts in 2013, and it appears the company would likely exceed expectations handily.

We continue to see significant fundamental value in KSH’s share price, even given our conservative sum-of-the-parts valuation made up of 1) the construction segment valued at 3x FY13 segment earnings and 2) the property development segment valued at a 50% discount to RNAV.

With a good track record of execution from management and a solid earnings growth profile (YoY earnings growth forecasted at 68% in FY13 and 73% in FY14), KSH remains one of our top value picks in the small-cap universe.

Potential catalysts ahead include new contract wins and the anticipated launch of Hong Leong Gardens in 1H13.

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