KSL ... Jan10

1. Placement of share
KSL has appointed RHB Investment Bank as a placement
agent to place out up to 35.5m new shares (@10% of
outstanding shares) at a price to be determined later.
According to management, the proceeds from the placement
of shares would be utilized as working capital and to defray
expenses relating to the placement exercise.
Based on the maximum 10% discount to the last 5-day
volume weighted average price of RM1.23, KSL would
receive RM39.3m from the placement exercise. Deducting
the estimated RM250,000 for the placement expenses, the
company would have RM39m, which will be utilized as
working capital.

2. Financial impact
We estimate the placement of share would result in 9%
dilution to FY10-11 EPS, after incorporating 1) the issuance
of new shares; and 2) interest saving of RM0.8m per annum.
However, we are positive on the proposal as we believe this
cash call is needed for the company to prepare for its maiden
project in Klang Valley, known as Bandar Bestari. Note that
the company is targeted to launch this project in 1Q10. As
this is a greenfield project, some capex would be needed for
the development of basic infrastructure and landscaping.
With regard to dividend payment, KSL would have extra
cash to meet our projected net dividend of 5-6sen/share for
FY10-11. More importantly, we believe the placement of
shares would improve the stock trading liquidity.

3. Earning Outlook:
We are leaving our FY09-11 earnings projections
unchanged, pending on the finalization of placement
price. We assume the company to achieve RM250m
sales for FY09, RM290 for FY10 and RM315m for
FY11. KSL’s unbilled sales stood at RM110m as at
September-09.

4. Recommendation
No change to our fair value of RM1.84/share, based on
an unchanged PER of 8x CY10 EPS. We continue to
like KSL given: 1) its ability to garner above-average
development margins of >40% underpinned by its
centralised procurement units that help in reducing
development cost; and 2) strong financial standing with
net cash position. Maintain Buy.