Monday, February 4, 2013
King Wan: DMG initiates coverage with a Buy rating and TP of $0.40. Note that King Wan is Singapore’s leading Mechanical & Electrical (M&E) services provider for the construction industry, and also operates the country’s largest fleet of mobile lavatories. KWAN’s investment in two Thai associates for $12.3m were sold last year for $50m, and expect this sum to be distributed over the next 10 yrs, doubling the dividend and raising the yield to 11%. Thai associates’ value may increase on KTIS IPO. Effectively 74% of mkt cap is net cash. The Thai associates were sold to Kaset Thai Industry Sugar (KTIS) for 5% in cash and 95% in shares of KTIS (equivalent to an estimated 3% of KTIS), which is headed for IPO within five months. Being the third-largest sugar miller in Thailand, and the largest listed one, expect the IPO to perform well, which provides upside to the value of the Thai Associates. KWAN has no moratorium on the sale of its KTIS shares and thus enjoys full flexibility on the timing of the sale. From another angle, if KWAN sells its KTIS shares immediately on IPO, its net cash balance would be 74% of its entire market cap. Grp has a very strong balance sheet prompting increasing core dividends. KWAN’s balance sheet is solid with a net cash of $21.5m (23% of the market cap). As the core businesses no longer require much capital expenditure, KWAN has been aggressively returning cash to shareholders – dividends grew by at a CAGR of 82% over the last five years. At the current 1.5¢ div, KWAN still has four years of dividends in its net cash balance.