Low Keng Huat - Undervalued Gem - Target Price $0.89 (40% Upside)

Low Keng Huat - Undervalued Gem - Target Price $0.89 (40% Upside)

Low Keng Huat (Singapore) Limited (“LKHS”) is a builder established since 1969. Today, its business has grown to encompass building construction, property development, hotels and investments.

LKHS is a deeply undervalued property development stock with a dividend yield of 4.65%. Its current share price is S$0.64 as at 21st April 2017.

Our conservative estimate for its RNAV per share = S$1.27

Note that the above estimate excludes any profits from Kismis Residences, Balestier Towers, AXA Tower Strata Sale, and Perumal Road Mixed Development. 

Initiate with Strong Buy, Target Price = S$0.89 (40% Upside), a 30% discount to its RNAV per share of S$1.27.

We believe a 30% discount to RNAV is reasonable as our estimate excludes future profits of the above projects. Our RNAV estimate will be adjusted upwards on further clarity of the above projects' profitability.

Deeply Undervalued Stock

Net Asset Value in Balance Sheet is recorded as: Historical Cost less Accumulated Depreciation. 

This is one of the rare Singapore property development stocks that records its properties using the Historical Cost method, which will significant undervalue the true worth of LKHS.

Net Asset Value = S$694m (As at 31st Jan 2017)

We have adjusted the value of LKHS properties based on the independent professional valuation* conducted on 31st Jan 2016. Market Values (MV) are conducted based on the Discounted Cash Flow Method and the Capitalisation Method.

* Details can be found in the LKHS 2016 Annual Report.

Adjust for MV of Paya Lebar Square Retail units (159 units): +S$132m

Adjust for MV of Paya Lebar Square Office units (4 units): +S$7m

Adjust for MV of Marine Parade Office units (2 units): +S$3m

Adjust for MV of Duxton Hotel, Perth: +S$89m (A$84m)

Total Adjustments = +S$231m

Revalued Net Asset Value (RNAV) = S$925m

Number of Issued Shares = 738.816m

RNAV per share = $1.27

*Disclaimer - We are long LKHS.