King Wan - Sustainable Dividends But Where Is It Going?

King Wan Corporation has garnered quite a bit of attention in the past year based on the volume and price it traded leading up to the end of 2013.

Lets first look at what King Wan does according to the companies website: The company was founded as a Mechanical and Electrical Engineering company which provided a one-stop inte­grated ser­vice provider com­pris­ing plumb­ing and san­i­tary works, elec­tri­cal engi­neer­ing, instal­la­tion of fire pro­tec­tion and alarm sys­tems, air-​conditioning and mechan­i­cal ven­ti­la­tion sys­tems, com­mu­ni­ca­tions and secu­rity sys­tems as well as under­ground pipeline com­mu­ni­ca­tions systems. 

Today, they have evolved from  hum­ble begin­nings as a con­struc­tion firm to include three other busi­ness seg­ments, namely Prop­erty, Ser­vices, and Ves­sel own­ing & char­ter­ing.

Property Segment: Engages property development in countries like Singapore, China and Thailand with a mix of residential, mixed developments, office and commercial buildings. 

   
Services segment: Provides rental and cleaning services of portable chemical lavatories.

 

Vessel owning and Chartering segment (Fairly new venture): Purchasing of vessels and chartering it out to a third party 

Dividends Support

Source: Morningstar

As shown from the table above, King Wan has provided a ~ 5% Dividend Yield (S$0.15) in recent years and looks to be able to provide a steady dividend yield in the coming years just via it's Mechanical and Electrical Engineering business segment, which currently contributes about S$5m-7m of cash, which is enough to sustain the 1.5 cent ordinary dividend totaling S$5.2m .

In additional, in October 2013, King Wan announced it has secured five new mechanical and electrical (M&E) contracts in Singapore worth a total of S$26 million during the period from August to October 2013.

The 5 new contracts are as follow:

* Air conditioning and mechanical ventilation project for the Alexandra Echelon Condominium;

* Plumbing, sanitary, gas and fire protection installation project for Tampines N4 C27 (289-unit HDB project)

* Plumbing, sanitary and gas installation project for the Overseas Family School;

* Plumbing, sanitary and gas installation project for the Buangkok Jewel (616-unit Condominium);

* Plumbing sanitary and gas installation project for the Water Woods (373-unit Executive Condominium).

With these new contracts, our Group’s order book to date stands at S$168.9 million, with M&E contracts which will keep us busy to 2016 as commented by Ms Chua Eng Eng (蔡 莹 莹), Managing Director of King Wan.

Additional Cashflow

As earlier mentioned, King Wan had ventured into the vessel owning and chartering business; It  had taken a 30% stake in a Supramax bulk carrier in 2013 as the original buyer could not complete the purchase, therefore it was sold at a discount to King Wan and has been chartered out from March 2013 to a reputable charterer at US$9,500 a day for three years.

With the rental agreement for the next three years, King Wan is assured of positive cashflow and a possible capital gain should it choose to offload the vessel later on.

Main Catalyst

Probably the main reason for the increased attention in 2013 was due to King Wan’s investment in two Thai associates for S$12.3m were sold for S$50m to Kaset Thai Industry Sugar (KTIS) in a deal involving  5% in cash and 95% in shares of KTIS (equivalent to an estimated 3% of KTIS), which is slated to head for IPO on the Thai Stock Exchange.

Source: Bloomberg

Notice the upturn in pricing in February 2013 when the news was released about the sale. 

King Wan has no deadline on the sale of its KTIS shares upon IPO and thus will be able to maxminse the value by selling at the price deemed reasonable. When King Wan disposes of KTIS shares either in one go or gradually, it would place it in a poisition to reward shareholders in the form of perhaps a sizable multi-year special dividend.

Risk

The political unrest in Thailand probably delayed the listing of KTIS as it waits for a more conducive market conditions to list. The delay looks to have made some investors weary of waiting for the possible IPO to go ahead by the looks of the fluctuating price range KWAN:SP has been trading in.

Worst case scenario: what if KTIS decided to scrap the listing plan? How will the market react?

Another point to consider is King Wan's Property Segment; with the Singapore Government tightening policies - property cooling measures, expectation of rising interest rates and lower liquidity over the next few years. How well will King Wan local res­i­den­tial development; 'Mead­ows Bright' and 'Skywoods' fare?

These are possible questions that potential and existing investors of King Wan have to ask themselves.

Conclusion

King Wan's investment decisions goes to showcase that the current Management of King Wan are willing to make decisive  decisions (purchasing of vessel in 2013) and risk in diverting their portfolio into non-traditional areas, which have proven fruitful in the results demonstrated in 2013. 

Along side that King Wan looks to be able to provide a steady dividend stream (~5%) to investors into the near future. King Wan definitely looks to be attractive to many investors. 

However, the big question remains: will KTIS go ahead with the listing and how will the Market react if it does not?

Potential investors will have to judge their own risk appetite - Is the dividends and possible capital gains enough to on the risk of suffering the repercussions of KTIS not going ahead with the IPO this round? 

King Wan Closing Price was 0.29 as of today. 

 

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