10 June 2014

Keong Hong - Bonus Shares - June 2014

Keong Hong is a construction company listed in Singapore Catalyst Board. It started the venture into property development sector via joint ventures with established developers by taking construction works as part of the business agreement.

As Singapore property market was experiencing a cool down this year (especially the latest cooling measurement - Total Loan Servicing Ratio that immediately shut down the doors for those who rely on variable income instead of fixed income), we have noticed that more developers venture into oversea market especially Australia / China / UK / other Asean countries.

As a Singapore based company, Keong Hong also took a move to venture into oversea market such as Maldives. I was quite surprised that how would a small size company could clinch a construction project in Maldives and later on had business agreement with Maldives government to build and lease resort development project there (Notwithstanding I believe the net earnings generated would be small percentage compared to total net earnings).

Secondly, as it is now getting more joint ventures with other developers (about 10% - 20% stake), the future gross profit margin is set to be higher than current level. Furthermore, it also had a JV of hotel development in East Coast in Singapore which I believe would bring in recurring income in future. This is a good move to me as it would enhance the profit visibility and be a catalyst for future PE adjustment.

Company was proposing a bonus shares issue of every 1 share to 2 shares for shareholders and to be executed by this month. It would enlarge the outstanding number of shares as well as liquidity in the market. However, it would not change the fundamentals of shares as all the financial ratio would remains the same. For example, if you are given 1 bonus share for 2 shares that you hold, your total value of investment remains the same, as the market price would be adjusted according to it (e.g. 63 cents would be adjusted to 42 cents after the exercise of bonus shares).

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