Tea with Solace: King Wan Corp. Ltd.

Business Structure

 

King Wan Corporation Limited is a Singapore-based integrated building services Company with principal activities in the provision of mechanical and electrical (M&E) engineering services for the building and construction industry. It also operates in three other business segments, namely Property, Manufacturing and Services.

It operates principally in four business segments:

 

Engineering segment: Provides multi-disciplined M&E engineering services such as the design and installation of electricity distribution systems, fire protection, alarm systems,

communications and security systems, and air-conditioning and mechanical ventilation systems for the building and construction industry;

 

Property segment: Engages in the development, marketing and sale of residential and commercial properties in Singapore, China and Thailand;

 

Services segment: Provides rental and other services for mobile chemical lavatories and other facilities for construction worksites as well as public and nation-wide public events.

 

Vessel owning and chartering segment: Buys suitable vessels for chartering to third

parties.

(Source: King Wan's website.)

 

From M&E Engineering to developing property, providing mobile toilets and even vessel owning, this seems like a Rojak company to me at first glance. However, bearing in mind that a well mixed Rojak can be delicious, I decided to dig further.

 

King Wan's true strength lies in its engineering segments. It has more than 30 years of experience in the building and construction industry and has established a sound and stable foundation. 

 

Within the mechanical & electrical (M&E) space, King Wan is a company that is involved in the fields of electrical, plumbing, air-conditioning and fire protection. Its economies of scale give it a contract-winning cost advantage.

 

Recently, King Wan Corporation won S$26 m worth of new M&E contracts. Total M&E contracts' value stands at S$168.9 million, lasting to 2016. This will keep them busy.  This core segment contributes an estimated S$5 m to S$7 m, which should be sufficient to meet the 1.5 cents of dividends.

 

 

On the property front, King Wan together with TA Corporation, Hock Lian Seng and Far East Distillers Pte Ltd ventured into condo development. They have recently unveiled “The Skywoods” at Dairy Farm Road. Some people believe that Kingwan is late to the party but I believe it is better late than never. I am paying close attention to how this property segment can contribute to their overall performance.

 

In 2013, the company ventured into vessel ownership and chartering business through Gold Hyacinth. The first vessel purchased called “Hai Jin” is a bulk carrier. The vessel has since been chartered to a 3^rd party. This operation should contribute to the group’s results in the new financial year, which I am keeping an eye on to see how it can value add.

 

The rental of mobile toilets contributes about 4% of group's total revenue. It provides a diversified and steady income stream.

 

Perhaps, the biggest reason why the stock jumped this year was the announcement of Share Sale Agreements signed with Kaset Thai Industry Sugar (KTIS). KingWan has agreed to sell to KTIS its entire shareholding in Environment Pulp and Paper Company (EPPCO) and Ekarat Pattana Company Limited (EPC), comprising 5 percent in cash and the rest in listed KTIS shares. Barring unforeseen circumstances, KTIS shares are expected to list on the Stock Exchange of Thailand.

 

This event can unlock shareholder value. In the latest announcement, Kaset Thai Industry Sugar (KTIS) has applied for IPO. The Securities and Exchange Commission (SEC) in Thailand has allowed KTIS to begin marketing its shares. This adds another level of certainty to the anticipated IPO as well as the declaration of the 1.5 c special dividend.

 

 Financials Fundamental

 

Market Cap ~ $103M @ $0.295 per share

EPS ~ $2.35 cents

P/B ~ 1.21

NAV ~ $0.2431

PER ~ 12.55x

Dividend Yield ~ 5% (Based on core 1.5c dividend)

Dividend Distribution ~ Aug/Nov Semi-Annual Distribution

Current Ratio: 1.46

Quick Ratio: 1.43

Gross Debt to Total Equity Ratio: 18.3%

 

Conclusions

 

I like the strong core M&E business. The strong order book can sustain a few years of core 1.5 cents dividends.  I like to be rewarded with dividends while I monitor the company growth. Semi-Annual distribution has been consistent even during the crisis year which is good.

 

With the impending listings of the group’s two Thai associates, EPPCO and EPC, the financial position should be boosted. I will be looking closely whether King Wan can explore new investments that can add value to share holders.

 

Some risks are also on my mind. The risk in property development has increased with more cooling measure introduced. We have yet to see result from Vessel Ownership and Chartering business; profits may get dragged if it does not perform well. Revenue will decrease with a lack of contribution from its Thai associates after sale.

 

I would usually write down the reasons for investing in a company. If the company takes a turn for the worse, I take out the piece of paper and analyse whether the reasons for buying the stock still makes sense.

 

For King Wan, if the competitive edge of the engineering segments gets eroded by competition and if the listing of Kaset Thai Industry Sugar (KTIS) gets into trouble, it will be enough for me to admit I made a mistake. This will be the right reasons for me to sell the stock.

 

Disclaimer: The article is my personal opinion and is not a recommendation to buy or sell. Any increase in popularity of the stock that leads to an increase in share price will benefit Solace in the long run, Haha.

 

Read other guest blogs by Solace: here.