SINGAPORE (May 31): UOB Kay Hian is maintaining its “buy” on developer KSH with an SOTP target price of $1.12 given healthy visibility ahead with strong orderbook and $163.2 million sales balance.

KSH’s orderbook stands at $340 million which provides more than a year’s earnings visibility.

Its JV and associates have launched 15 projects with around 96% sold. The balance sales proceeds of $163.2 million, which will be progressively recognised, will help underline KSH’s future profits, says UOB in a Wednesday report.

More importantly, KSH’s Gaobeidian development in China is undergoing some re-planning involving the merging and formation of land plots to better enhance land use and reduce the setback area.

However, this would also mean that the target launch has to be postponed -- tentatively to Dec 17 -- and contributions will be delayed by six to 12 months as new development plans will have to be resubmitted to the authorities.

Aided by the announcement of the Xiongan New Area special economic zone, Gaobeidian prices have surged considerably. “We see the 1.9 million sqm in Phase I of the total 5.3 million sqm of the Gaobeidian project providing the next leg of growth for KSH,” says UOB analyst Edison Chen.

“For every Rmb1,000/sqm increase, we expect KSH’s profits to increase by $31 million,” he adds.

Meanwhile, KSH’s FY17 results came in line with expectations. Earnings fell due to lower property development profits, Gaobeidian preliminary costs and impairment loss on unsold properties.

KSH recorded lower associates profit of $8.5 million in FY17 due to a $12.2 million drop in share of profit recognised from Sequoia Mansion, preliminary costs of $3.9 million incurred in the Gaobeidian project in China, and $5 million provision for impairment loss on unsold properties for financial prudence.

“We are not concerned by these one-off costs as they may eventually be recovered in the subsequent years when the Gaobeidian project kickstarts or sentiment in the Singapore property market improves,” says Chen.

Shares of KSH are trading 1 cent lower at 90 cents.