Koh Brothers Group Ltd

6 April 2009


In a Straits Times article on April 6, the commentator voiced her worries that the government's pledge of between S$15 billion to S$18b each year for public infrastructure works over the next three years might be insufficient to mitigate the slump in construction demand from the private sector.

She also quoted industry experts who said private housing contractors are likely to really suffer from the global recession once existing projects were completed.

Despite the grim outlook surrounding the business, Koh Brothers has yet to break a sweat.

Contrary to the Straits Times article, the developer expects to benefit from the government's public spending and the state's so-called Resilience Package.

The company is confident that its orderbook of more than S$600m will help support its FY2009 earnings.

Sales for FY2008 had dipped 24% to S$215.8m with net profit falling 39% to S$26.7m due to fewer projects completed and the absence of a revaluation surplus and exceptional gain from the previous year.

As a result of its ongoing projects, Koh Brothers burned S$83. 7m in cash from operations compared to the S$4.9m last year. It has maintained its dividend payout of 0.3 cent per share.

On March 23, Westcomb initiated coverage on Koh Brothers with a BUY call, but downgraded the stock four days later to a HOLD on news of the voluntary liquidation of the group's hotel investment and management joint venture in Vietnam.

Koh Brothers' recent acquistion of VNT travel on April 2 did not prompt Westcomb to revise its call on the stock. It has maintained its HOLD call on the stock, but has kept its price target constant at S$0.15 since its initial coverage.

SIAS Research wasted no time in reminding its readers about the disastrous state of property prices and construction demand.

Despite its stand, the analyst still awarded a BUY call on the stock with a target price of S$0.165. SIAS Research is confident that Koh Brother's order book of S$690m and its diversified revenue base will provide the business leverage in this choppy environment.

Koh Brothers is engaged in civil engineering, building material manufacturing, construction, property development and leisure projects. Thanks to its diversity, it has bought itself sometime to fatten up for the brewing famine in the property and construction sector.

Koh Brothers closed 2008 on a high note when it was awarded a contract from LTA in December worth S$582m for the Downtown Line's Bugis Station. The project is due for completion in September 2013.

Less than a month later it was awarded a S$144.6m HDB contract for Punggol Waterway, due for completion by Q4 2010.

The revenue pie may be shrinking but Koh Brothers has proven that it is up for whatever projects the government tosses its way. In comments to a Business Times article on January 15, the company said it is targeting about S$137m worth of projects this year.

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