king wan.pdf

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King Wan Corp (KWAN SP)16 August 2013

See important disclosures at the end of this report 2

Additional NotesFigure 1: Results in review Year e nded 31 Ma r 1Q13 4Q13 1Q14 q-o-q y-o-y Rema rks

Revenue 12,991 29,623 25,146 -15% 94% Strong Mechanical & Electrical operations continue from 4QFY13. Order book of SGD143m is healthy and provides visibility for two years.

Cost of sales (10,555) (26,683) (21,272) -20% 102%

Gross profit 2,436 2,940 3,874 32% 59%

Other operating income 282 2,285 920 -60% 226% General increase due to higher interest income from loans made to associates.

Administrative expenses (1,683) (1,806) (1,815) 1% 8% Cost controls are effective. Stable costs while revenues surge.

Share of Associate income 428 (500) 300 -160% -30% New contribution of bulk carrier in 1QFY14.

Finance costs (45) (78) (109) 40% 141%

Profit before tax 1,419 2,841 3,170 12% 123%

Income tax expense 0 45 (600) -1431% n.m

Net profit 1,419 2,887 2,570 -11% 81% No large one-offs in this period. Earnings are recurring with stablemargins.

Gross margin 18.8% 9.9% 15.4% Higher proportion of high-margin work in 1Q13. 1QFY14 margins aremore normalised. Rise from 4Q13 was due to conservative accounting in4Q13.

Net margin 10.9% 9.7% 10.2% Stable Source: Company data, OSK-DMG estimates


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SWOT AnalysisStrong core mechanical & electrical business, with adiversification across multiple investments inindustries

High cash flows permit dividend increases. Thecompany has a track record of raising dividends.

Theconstructionmarket is highlycyclical

New entrantsare possible butrisk is mitigatedby highqualificationrequirements

Theconstructionmarket is set toboom, spurredby Governmenthousinginitiatives

Post-crisis,many assetsare at bargainlevels in variousindustries.KWAN has agood trackrecord of long-term alternativeinvestments

Its non-core businesses are a concern to someinvestors

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Source: Company data, OSK-DMG estimates Source: Company data, OSK-DMG estimates

Company ProfileKing Wan (KWAN), the market leader in mechanical and electrical services in Singapores construction i ndustry, is also involved inhigh-end property development. It owns several associate companies in various industries, building on its long track record of highly-profitable alternative investments. It recently sold its Thai associates to Kaset Thai Industry Sugar, which is headed for an IPO this year.


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Recommendation Chart

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3Recommendations & Target Price

Buy Neutral Sell Trading Buy Take Profit Not Rated

Source: OSK-DMG estimates, Bloomberg

Date Recommendation Target Price Price

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


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DMG & Partners Research Guide to Investment Ratings

Buy: Share price may exceed 10% over the next 12 monthsTrading Buy: Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertainNeutral: Share price may fall within the range of +/- 10% over the next 12 monthsTake Profit: Target price has been attained. Look to accumulate at lower levelsSell: Share price may fall by more than 10% over the next 12 monthsNot Rated: Stock is not within regular research coverage

DISCLAIMERS

This research is issued by DMG & Partners Research Pte Ltd and it is for general distribution only. It does not have any regard to the specific investmentobjectives, financial situation and particular needs of any specific recipient of this research report. You should independently evaluate particular investments and consult an independent financial adviser before making any investments or entering into any transaction in relation to any securities or investment instruments mentioned in this report.

The information contained herein has been obtained from sources we believed to be reliable but we do not make any representation or warranty nor accept any responsibility or liability as to its accuracy, completeness or correctness. Opinions and views expressed in this report are subject to changewithout notice.

This report does not constitute or form part of any offer or solicitation of any offer to buy or sell any securities.

DMG & Partners Research Pte Ltd is a wholly-owned subsidiary of DMG & Partners Securities Pte Ltd, a joint venture between OSK Investment Bank

Berhad, Malaysia which have since merged into RHB Investment Bank Berhad (t he merged entity is referred to as RHBIB which in turn is a wholly -owned subsidiary of RHB Capital Berhad) and Deutsche Asia Pacific Holdings Pte Ltd (a subsidiary of Deutsche Bank Group). DMG & Partners SecuritiesPte Ltd is a Member of the Singapore Exchange Securities Trading Limited.

DMG & Partners Securities Pte Ltd and their associates, directors, and/or employees may have positions in, and may effect transactions in the securitiescovered in the report, and may also perform or seek to perform broking and other corporate finance related services for the corporations whose securitiesare covered in the report. This report is therefore classified as a non-independent report.

As of 15 August 2013, DMG & Partners Securities Pte Ltd and its subsidiaries, including DMG & Partners Research Pte Ltd, do not have proprietarypositions in the subject companies, except for:a) -

As of 15 August 2013, none of the analysts who covered the stock in this report has an interest in the subject companies covered in this report, except for:a) -

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