STOCK - KPS

Stock : KPS (5843)
Full Name : Kumpulan Perangsang Selangor Bhd
EPS (cents) : -19.50 (2005); 15 (2006, annualised)
NTA (RM) : 1.99
DY : 6.25%
Price (RM) : 0.48
PE : - (2005); 3(2006, forecasted)
Recommend : BUY, Target >RM0.58

Subject: KPS - Cheapest Entry for the exposure of Msia Water Concession Business

Reasons
--------
1. Hold stakes in various state water concession companies, such as Taliworks, ABASS & SPLASH. Potential to benefit from the 9MP and any water price hike
2. Taliworks has adopted a dividend policy of paying out at least half of its net profit as gross dividends for the next three years. KPS has also taken control of ABASS, which it will have control in the future profit distribution. This will improve KPS future cash flow - hence reduce interest charges and increase dividend payout
3. KPS has been positive in participating in the Langat II project and West Coast Expressway. These projects however are still awaiting finalisation agreement by the authorities - futher potential upside?
4. Recent announcement of PKNS to taking Worldwide private. KPS is the 2nd largest shareholder of Worldwide
5. Backed by PKNS


Risk
----
1. Management failed to turnaround
2. National water policy turns out to be unfavourable to water concession players
3. KHSB makes further losses as a result of softening property market


Conclusion
----------
Management past decisions such as taking control of ABASS, disposing money-losing business, and writing down the property value for KHSB in 2005 (resulting a huge loss) are viewed positively. The management seems no longer want to take a passive role and would like to turnaround KHSB. Current price of KPS is almost 75% discounted from its NTA. I think market has basically "write-off" KPS entire property arm.

With the increasing population in Selangor and more projects obtained by Taliworks, the contribution from associate companies to KPS will be growing significantly in the future. At RM0.475, 6.5% dividend yield, KPS has very limited downside. 1Q06 KPS's property arm has managed to turn into black. Although amount is insignificant, it's a positive indication of the management's effort. Privatisation of Worldwide will bring in additional cash. KPS is also likely to benefit from the 9MP. With so many favourable factors, I'll recommend KPS a BUY with a target of >RM0.58. As long as its property business remains in black, I don't see the reason for the price to go down further.


Disclaimer: This report is brought to you by 大脚Y, an unlicensed investment adviser. Please exercise your own judgment or seek professional advice from your remisiers. I am not responsible for your investment decisions.