Two of my favorite stocks for the next 12 months

Two of my favorite stocks for the next 12 months are Keong Hong and Penguin.  Below are some brief information.  I will provide a more detailed analysis of each of them when I have time to consolidate my notes.

Penguin
Penguin has just released a set of stellar 2Q14 results. It closed at 23 cents today. One will be lucky to buy it at 24 cents or below tomorrow.

Net profit for 2Q14 is 9,884K, 69% higher than 3Q13 and 39% higher than 1Q14. Earning per share is 2.57 cents for 1H14. For a share price of 23 cents per share, price-earning-ratio is 4.5 only. It has zero borrowing,

Return on Equity is 27%. The valuation is extremely attractive as the prospect remains bright.


Keong Hong

Keong Hong Holding Limited (KHHL) was established in Singapore in 1983 and was listed on the Catalist board in December 2011. It is a provider of a broad range of building construction services to both private and public sectors for residential, commercial, industrial and institutional projects.  It first forayed into property development in 2012 through a 20%:80% joint venture with Frasers Centrepoint Limited to develop the 728-unit Twin Waterfalls executive condominium (EC) in Punggol.  It has since participated in several EC developments and hotel developments with different partners, and development of hotels/resorts and airport in Maldives.

 

At 40 cents per share, Keong Hong’s extrapolated price-earning-ratio of about 5.5, price-over-net asset value of 1.32 and historical dividend yield of 4.2% are attractive in consideration that it has a strong order book of S$494 million as at 31 March 2014 (not taken into consideration construction contracts expected from some joint property development projects), a pipeline of construction and property development projects in Singapore and Maldives, and a huge profit (estimated to be more than S$15m) in the fully sold Twin Waterfalls EC project that will be booked after the project’s TOP in December 2014 – For EC projects, the profit can only be booked and taken out of the project account after the TOP. The Twin waterfalls EC project is presently reflected as a loss and the net asset value is reflected as negative in Keong Hong’s account (Page 73 of its 2013 Annual Report). Keong Hong’s FY13 profit after tax is $21.4m and 1H14 profit after tax is $8.6m mostly from its construction business; hence, an additional $15m from the property business will boost its FY15 profit after tax significantly.

 

The key investment risks for Keong Hong are as follows:

·        Chairman, CEO and Substantial Shareholder Leo Ting Ping is indispensable to Keong Hong and he should be about 65 years old (graduated from NUS with his Bachelor degree in 1974), should he be unable to carry on, Keong Hong’s business will be significantly affected.  It is noted that his son Leo Zhen Wei Lionel, who is a partner at WongPartnership LLP and an assistant registrar at the Supreme Court previously, was appointed a non-executive director of Keong Hong recently (June 2014).

·  Keong Hong has very strong balance sheet previously.  It has embarked on a number of construction and joint property development projects recently and that will stretch its finance.  Keong Hong may need to increase its debt level and/or raise fund via the capital market via share placements or right issues.

·  Though Keong Hong has a strong track record in project execution and has not incurred loss in any projects after listing, there is no guarantee that all its existing and new projects will be profitable.  Cost overrun may affect the profitability and profit margin.

 

The key catalyst for Keong Hong’s share price to appreciate is after it books its share of profit from Twin Waterparks after its TOP in December 2014.