KSL Holdings Bhd: Too cheap to ignore

Publish date: Thu, 07 Mar 2024, 09:05 AM

  • BACKGROUND: The Company develops and manages properties in Malaysia, including residential and commercial properties; and operates hotels and malls, and car parks. The company operates through four segments: Property Development (82%/68% of Revenue/op.profit), Property Investment (17%/31% of revenue/op.profit), Investment Holding, and Car Park Operation. The company’s property portfolio includes factory/warehouse, townships, shopping malls, hotel, resorts, and other residence. 
  • FINANCIALS: TTM net profit of MYR414m; PE'23 of 3.6x; P/B of 0.4x; Net cash of MYR486m. Based on comparable valuations, share price is extremely undervalued. The reason for undervaluation is most likely due to zero dividends paid since 2015. 
    • Plenty of catalysts in Johor: The Malaysian government's plans to develop Johor such as special financial zone in Forest City, Johor Bahru-Singapore Rapid Transit System (RTS), potential revival of High Speed Rail linking KL-Singapore and Iskandar Growth Corridor, will greatly benefit the Company as the Company's operations are concentrated in Johor.  
    • Dividends? If the Company restarts its dividend payout, share price will likely surge.  
    • Property investments segment can be spin off as REIT: The major benefit of REIT is the tax exemption granted by Malaysian government (If more than 90% of the profits are distributed to shareholders). This could potentially boost its net profit by up to MYR28m/year. Besides, valuation of its REIT can reach more than MYR1.44b (based on PE 12x & profit of MYR120m). If this is to materialise, share price could easily double.
  • INSIDER BUYS / MANAGEMENT OWNERSHIP %: The Ku brothers, Ku Hwa Seng, Ku Cheng Hai and Ku Tien Sek, hold more than 41% stake in the Company.
  • THESIS: The massive undervaluation and bright future prospects of the Company are obvious and undeniable. However, the management can do so much more to further its share price rally via dividend policy coupled with REIT listing of its property investment segment. 
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