Kimlun’s 1Q down, pick-up expected

Business & Markets 2013
Written by BIMB Securities
Tuesday, 28 May 2013 10:19
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Kimlun Corp Bhd
(May 27, RM1.91)
Downgrade to neutral at RM2.02 with a target price of RM2.04:
Kimlun’s net profit of RM8.96 million for the first quarter ended March of
2013 financial year (1QFY13), down 15.6% year-on-year (y-o-y), met
only 17% of our expectation and 16% of consensus full-year projections,
mainly attributed to net profit margin compression to 4.2% compared
with 5.4% in 1QFY12 and 5.2% in 4QFY12. Despite the slower
1QFY13, we are maintaining our forecast for FY13 and FY14 as we
anticipate it is only a temporary hiccup and expect higher figures for
2QFY13 and beyond.
Kimlun’s lower than expected results are mainly due to: (i) lower
contribution from its CONSTRUCTION [] division as a result of higher
payroll costs and depreciation charges; (ii) increase in selling and
administrative expenses in line with the group’s business expansion; and
(iii) higher financing costs due to higher borrowings to fund captial
expenditure for construction, start-up costs for a new factory and
equipment to improve efficiency.
We believe earnings for the second half (2H) of FY13 will improve as
we foresee a pick-up in progress billings. The total order book in hand
stood at RM1.7 billion including projects secured in 2013 worth about
RM152.1 million. In addition, we expect there will be more contract flow
in 2H, especially from Iskandar Malaysia in Johor. We see positive news
for the company from the 30km fully underground Thomson MRT Line in
Singapore, which is expected to be awarded this year. Kimlun is expected to get a contract to supply tunnel lining segments.
We are leaving our FY13 and FY14 forecasts unchanged on expectation of better results in the remaining quarters. We
exepct 12.6% growth for this year. We downgrade Kimlun to “neutral” with a target price of RM2.04. — BIMB Securities,
May 27