Low Keng Huat (Singapore)

[greengiraffe]

I have just completed a quick results review on LKH. LKH has taken the opportunity of the completion of The Minton to signal to the market their base line DPS of 3 cents which they are comfortable with in the absence of lumpy development profits.

On their books, LKH is in the midst of completing 2 sizable development projects before transitioning to a higher quality recurrent income model driven by largely rental income from their 40% stake in Westgate Offices, 55% stake in the PL Sq Retail, Duxton hotel in Perth and hotel in Vietnam and F&B operations in Singapore.

Before we transitioned to the more stable income model, the following are the lucrativeness of the 2 remaining developments:

Parkland Residence (all but 4 units are sold), land costs $206ppr, average selling prices at least $530psf. I think LKH can make a pretax of 20%:

http://infopub.sgx.com/FileOpen/ANCE0112...eID=134877

http://parklandresidences.net/pricing/

Total salable area approximates 693124sf @$530psf (Gross sales proceeds $367.4m) and assuming construction costs of $225psf, pretax profits of $56m or $46m net can be expected.

PL Square (430,000 sf office average sale price $1750psf, 95000sf retail already capitalised @$3157psf see below. Land costs ppr $1115psf)

PL Square (Office sold 96%) - Total Salable 430,000 sf @ $1750psf (LKH 80% share of gross sales $602m)

Construction costs of PL Square could be around $300psf (could be better as LKH is the main-con). Capitaland Group's Westgate costs $1300psf with a land costs of $1012ppr:

Capland winning bid: http://www.valuebuddies.com/thread-1075.html
LKH Costs - http://infopub.sgx.com/FileOpen/20140103...FileID=320
Capmall net gain: http://infopub.sgx.com/FileOpen/CMTSPAAn...ileID=2692

Pretax Gains from PL Sq Office 430000sf @ $335 psf ($1750 - $1415) = $144m.
LKH 80% share of net $94.5m

PL Sq Retail:

http://infopub.sgx.com/FileOpen/20130611...leID=26719

LKH will retain 55% of the PL Sq Retail after being capitalised @ $3157psf from the transfer to another 55/45 jv with Sun Venture Group. Based on the announcement, LKH should realise a net profit of $22.5m on TOP of the mall in 2015. Upon TOP at the capitalised value, PL Sq retail will account for $0.223 per share of LKH.

In summary:

i) Parkland Residence to net $46m, $367m cashflow on completion FY1/2015
ii) PL Sq Office to net $94.5m, $602m cashflow on completion FY1/2015
iii) Minton project company (associate level) likely to be unwind FY1/2015 returning cash at least $100m
iv) PL Sq retail to net $22.5m, $75m cashflow on dilution of 25% stake upon TOP

Likely earnings boost $140.5m $0.19 eps FY1/2015, cashflow return easilt $1.069bn FY1/2015. Current total debts around $500m, ie net cash levels of at least $500m post closure of projects.

The ending of the era of profitable development projects will help explain why LKH decided to buyout Westgate with Sun Ventures taking a majority stake of 60%. On a ungeared basis Westgate will cost LKH only $232m.

With such a healthy net cash balance sheet and a portfolio of stable investment properties, there are plenty of options for Low family who controls 75% of LKH that may include a privatisation.

The dividend policy of 3 cents a share is a comfortable one for management and it remains to be seen if they will be declaring a decent one off should my estimates of Parkland Residence and PL Sq Office sales are correct.

Vested, Less Uncertain
GG