SINGAPORE (April 12): UOB Kay Hian believes KSH Holdings has room for more upside, even though its share price has soared by close to 50% since last week.
UOB is keeping its “buy” call on KSH with a higher target price of $1.18, from 69 cents previously.
This comes after the Chinese government on April 1 announced it would create a new special economic zone (SEZ) in Hebei, called the Xiongan New Area (XNA).
Expected to be three times the size of New York City, the new SEZ in being compared to Shenzhen and Shanghai’s Pudong.
KSH’s Sino-Singapore Health City, a joint venture development with Oxley Holdings, Lian Beng Group, and Heeton Holdings, is located in Gaobeidian in Hebei province – just next to the new SEZ.
(See also: KSH, Lian Beng, Heeton, Oxley shares on a tear after site of China’s latest SEZ revealed)
“KSH hit a massive jackpot, says UOB analyst Edison Chen in a report on Tuesday. “Gaobeidian prices have surged from RMB9,000 per square metre to RMB20,000 per square metre and look set to go up further.”
Oxley and KSH are the two largest stakeholders in the Gaobeidian project, with stakes of 27.5% and 22.5%, respectively. Even though KSH is the second-largest stakeholder, Chen believes it will be the largest beneficiary.
“Unlike Oxley which has an extremely geared balance sheet (211% net gearing), KSH had net cash of $78.5 million (or 22.2% of market cap) as at end-16,” he says.
KSH’s FY17 net profit forecast has been lowered by 20.9% to $41.1 million as a result of a delay in recognition for Singapore projects.
However, Chen says KSH will see a “huge surge” in FY19 net profit on recognition for the Gaobeidian project in addition to delayed profits.
To this end, Chen has raised FY19 net profit forecast by 80.6% to $107.8 million.
“KSH’s fortunes are in a large part tied to its Gaobeidian project. If Gaobeidian prices continue to rise, KSH’s share price should move in tandem,” Chen says.
“In celebration of KSH hitting the jackpot, we believe KSH could announce some corporate action to reward shareholders, such as dividends or bonus issue,” he adds.
As at 3.51pm, shares of KSH are trading 4.5 cents higher at 82.5 cents.
