King Wan’s KTIS share sale may pave way for long-awaited special dividend

It could book stronger earnings this year.

King Wan recorded a breakeven performance in 3Q15 due to its conservative accounting policy.

According to a report by OSK-DMG, King Wan has sold some KTIS shares, thereby setting the stage for a special dividend in 4QFY15.

King Wan’s results are typically lumpy on a QoQ basis due to its conservative accounting policy of recognising minimal margins in the early stages of projects. More important for performance forecasts is its orderbook, which now stands at a record SGD189m and stretches until 2018.

KTIS share sale may pave the way for a special dividend. King Wan recorded a SGD270,465 gain on the sale of its shares in Kaset Thai International Sugar Corp (KTIS) (KTIS TB, NR) during the quarter. While there are no details on the number of shares sold or the amount of cash released, this may set the stage for our long-anticipated special dividend.

Here’s more from OSK-DMG:

Now trading below book value, and well below RNAV of SGD0.52/share. King Wan last traded at SGD0.305 per share, a discount from its book value of SGD0.338/share. We see this discount as unwarranted – the company is profitable and generates healthy cash flow that would be sufficient to fund a 10% dividend yield. Our RNAV of SGD0.52/share also does not impute any gains from its associates eventually selling their properties. TP of SGD0.43 is based on a conservative 7% targeted yield. We expect King Wan to pay 3 cents per share in dividends annually. Our 7% targeted yield is also conservative – the company has negative exposure to interest rates, being effectively in a strong net cash position. Thus, it should rightfully trade at yields below those of REITs.

Our RNAV of SGD0.52/share implies a 5.8% yield – which is not unrealistic, and this sets the upper boundary for our valuation of this stock. Key catalysts for the stock are: i) declaration of a special dividend, and ii) the loosening of property cooling measures in Singapore.