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AK might nibble at King Wan Corp. Ltd.

Tuesday, March 10, 2015

The past few years were characterised by very low interest rates as money supply was ramped up by the U.S. Federal Reserves. Many businesses and individuals probably benefited from this. However, interest rates cannot stay so low for too long.

In preparation for an environment of higher interest rates, I have mentioned a few times before that I am on the lookout for businesses which are net cash or have very low gearing. I would also like to have them pay regular and meaningful dividends. I said the same thing too during an interview I gave recently.


To this end, together with a handful of companies, I have also been keeping an eye on King Wan which is a company introduced to me by Solace, a guest blogger here in ASSI, some time ago. Solace also wrote a very good piece on King Wan then and I have appended the link at the end of this blog.

Of course, it is not enough that a business is in a net cash position or has low gearing. That only represents balance sheet strength. We should also want the company to have earnings visibility.

King Wan is in a net cash position and it also has an order book that would provide earnings visibility until 2018. Just like how I like Hock Lian Seng's order book which provides earnings visibility until 2020, I like the health of King Wan's order book too.

As I invest primarily for income, I am also attracted to King Wan because they pay dividends regularly. A DPS of about 1.5c per year seems undemanding given their more normalised EPS of about 2c.




What do I mean by normalised EPS?

Well, I know that King Wan made quite a bit of money from savvy investments which gave them extraordinary gains at times but it is the health of their core businesses' which is more important in helping to determine sustainability of their dividend payouts.

So, at a price of 30c a share, for example, a 1.5c DPS, representing a pay out ratio of 75%, gives us a dividend yield of 5%. Doesn't sound too bad, right? Then, why did I not buy some of its stock?

Well, as I shared with Solace in a chat before, I have a certain amount of money to be allocated and, after some thought, I decided to put King Wan in the same category as Hock Lian Seng which comparatively gave a higher dividend yield with a lower payout ratio of about 40%.

Am I going to invest in King Wan now, I asked myself, as Hock Lian Seng's stock price has shot through the roof? Why not a nibble?

OK, if Mr. Market should give me a better offer, I might.

Related post:
Tea with Solace: King Wan Corp. Ltd.

29 comments:

ozxinvest said...

The special dividend that everyone is expecting from Kingwan comes from whether it would sell it's KTIS shares.

In fact, this "news" have been around for a few years and the catalyst has already been "activated" (once) last year when it's share price shot up from 25.5c to 37c after a prolonged political issue, even then, it took a beating as KTIS traded below it's IPO price before reaching it's 52 weeks high of 37c, hence I think the info has been very much priced in by the market at around 31c to 33c after xd last year.

KTIS share price has retreated back to the 10 baht level, so chances that Kingwan will sell a large chunk of it's share is pretty slim.

Core earnings does not seem sustainable with the high div payout ratio. I think it would be better to get in at a higher margin of safety.

AK71 said...

Hi ozxinvest,

I share your sentiments on this. Hence, the last sentence of my blog post. ;p

I am also reminded that King Wan is also a JV partner in the Skywoods condominium together with Hock Lian Seng. Sale of the condominium is crawling along at a snail's pace. -.-"

seefei said...

got some at 30 last year.... waited until cobweb come still dont see KTIS get divested...

anyway, i see it as a mini congolomerate with a diversified portfolio of business.

good if AK got onboard, can get some free investment advice...

lol

AK71 said...

Hi seefei,

Calling for Solace! Solace, we need you here! LOL. Please let us know what you think. ;p

I don't feel comfortable getting in at the current price level but I could be wrong not to buy now. Who knows for sure? ;)

Solace said...

Hi AK,

At current price, i am neither buying or selling. I am vested at a lower price and is happy to collect dividends while waiting as the price remains status quo.

I believe 1.5 cents dividends is sustainable. 2 things to consider comes to mind on whether to increase holding at current price.

1. Is dividends yield at current price satisfactory to investors
2. Outlook of the core M&E
business which can affect cash flow.

with increasing competition and an expected increase in labour cost due to higher foreign worker levies. One might need to pay attention if profits margins can be maintained.

For potential catalyst, some forecasting might be necessary to make sense of what the management might do in the future. The management have a habit of doing out the blue investment like ships ownership/chartering and Thailand investment.

With the investment value in Thailand unlocked, Kingwan seek for more attractive business and investment
opportunities in the region. With a Establishment of S$150,000,000 Multicurrency Medium Term Note Programme September last year, what they want to do is everybody guess.

AK71 said...

Hi Solace,

Thanks for weighing in on this. Much appreciated. I share your sentiments.

I know you got in at 26c which gives you a pretty comfortable margin of safety. That was probably the lowest King Wan's stock price went to in recent times.

I will wait and see. If Mr. Market were to offer me a price closer to your entry price, everything else remaining equal, I might just nibble. ;)

betta man said...

King wan dropped to $0.285 as of 2 June, 9.26am. This is probably due to the postings of Q4 loss and general drop in STI of over 1%.

Full year dividend for previous FY stands at 1.7 cents. Time for nibbling ?

AK71 said...

Hi betta man,

I should not be doing this but I have anchored myself at Solace's entry price of 26c a share. LOL. ;p

I am not super motivated to become a shareholder here. So, I will wait. :)

betta man said...

King Wan fell to $0.255 as of 5 Aug 15, 1.38pm. It's nibbling time for AK!

AK71 said...

Hi betta man,

Hey, thanks for the heads up!

I have been nibbling quite a bit of other stuff recently and I think I might be suffering from heartburn. LOL.

OK, I will nibble if it goes to 23c... ;p

betta man said...

King Wan has hit $0.225 !!

AK71 said...

Hi betta man,

That is good news for some, isn't it? ;)

Solace said...

22 cents region might be a good price to enter into a position.

Can consider to take a nibble. Taking 1.5 cents dividends as estimate, it will give rise to about 6.8% yield, Which in my opinion is acceptable.

AK71 said...

Hi Solace,

Indeed, I share your sentiment. I am in the buy queue at 22c. ;)

AK71 said...

Initiated long position in King Wan at 21.5c a share.

King Wan secured 5 new mechanical and electrical (M&E) projects in Singapore during the period from June to August 2015, worth a total of S$24 million.

Order book stands at S$192 million, with contracts lasting to 2018.


Source:
http://infopub.sgx.com/FileOpen/KingWan%2013August%202015%20Contract%20wins.ashx?App=Announcement&FileID=364999

RayNg said...

Just sharing area of concern.

Regard to the Investment arm, I think the ROE 1.84% is very low ($1,326,966 / $72,166,145).

The investment balloon to $81,177,471 as report in 2016-1Q.


See note 8 & 38 of annual report 2015.


(Not vested)

AK71 said...

Hi RayNg,

That is a good point. Thanks for pointing that out. :)

Solace said...

King Wan Corporation wins S$15.7 m worth of new M&E contracts
Order book stands at S$180 million, with contracts lasting to 2018

The new projects are as follows:
 Plumbing, sanitary and gas systems installation for the Sims Urban Oasis, a 1,024-unit
condominium housing development, with multi-storey carparks, common basement carparks,
landscape deck, commercial and communal facilities located at Sims Drive.
 Sanitary systems installation for a proposed new 8-storey industrial building located at
Woodlands Avenue 12.
These projects are scheduled to be completed between 2017 to 2018.

Source: http://infopub.sgx.com/FileOpen/KWC%20Nov2015Contractwins.ashx?App=Announcement&FileID=376982

Very important to keep track on how the Core business of M&E is doing. An area to keep a lookout for.

AK71 said...

Hi Solace,

I would really like to see King Wan beefing up their order book a bit more before I feel more comfortable to add to my position. Like you have so rightly pointed out, it is important to keep an eye on their core business of M&E. Thanks for the update. :)

betta man said...

No interim dividend announced for Q2 of 2015. Disappointed :(

Janson Tyle said...

king wan price shot through the roof by 10 cents during the last hour of trading today. what happened? did they annouce a super bumper dividend ?

AK71 said...

Hi Janson,

Mr. Market's mood swings can be quite a sight. :)

ozxinvest said...

It's just 100 shares done for 30c, I doubt anyone will buy from you even if you queue to sell at 20c unless someone wants to maintain the share price above the 20c level.

Vested.

betta man said...

Bad news...

http://infopub.sgx.com/FileOpen/Profit%20Guidance%202016_27042016.ashx?App=Announcement&FileID=401325

AK71 said...

Hi betta man,

Very unfortunate. -.-"

betta man said...

More bad news..no dividend for the quarter that ended 31 Mar 16.

http://infopub.sgx.com/FileOpen/King%20W...eID=406665

AK71 said...

Hi betta man,

Again, very unfortunate but conserving cash is probably prudent.

betta man said...

King Wan starts paying mid term dividend again :)

http://infopub.sgx.com/FileOpen/King%20Wan%20Q2%202017%20Results.ashx?App=Announcement&FileID=428389

betta man said...

King Wan starts paying mid term dividend again :

http://infopub.sgx.com/FileOpen/King%20Wan%20Q2%202017%20Results.ashx?App=Announcement&FileID=428389

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