Kimlun’s earnings poised to recover in FY14

by **Cals** Mon 28 Oct 2013, 13:39

Business & Markets 2013

Written by RHB Research

Monday, 28 October 2013 10:34

Kimlun Corp Bhd
(Oct 25, RM1.96)
Maintain buy at RM1.95 with a fair value of RM2.36: Kimlun remains cautious on its 2013 financial year ending Dec 31 (FY13) earnings outlook but expects a stronger FY14 as some of the current headwinds subside gradually. While the construction division is poised to end the year with record contract wins of RM1.1 billion, these new jobs will not hit billing milestones during FY13.

Also, Kimlun is not spared the margin squeeze that has hit building contractors in general due to rising cost of specialist works such as piling, and mechanical and electrical (M&E). Meanwhile, the concrete products division’s performance will be weighed down by certain lumpy costs.

Kimlun intends to utilise its plant in Senawang, Negeri Sembilan — currently dedicated to producing SBG and TLS for Line 1 of the Klang Valley MRT project — to manufacture industrialised building systems (IBS) if the rollout of the MRT project’s Line 2 is delayed.

Its existing orders from Line 1, comprising tunnel lining segments (TLS) (RM48.5 million) and segmental box girders (SBG) (RM223.2 million), are scheduled to be fully delivered by mid-2014 and early-2015 respectively.

We cut our FY13 and FY14 net profit forecasts by 12% and 10% after factoring in slower progress and lower margins from newly secured construction jobs.

We believe the local construction sector will continue to do well as long as the RM73 billion Klang Valley MRT project is intact. We like Kimlun for its involvement in the production of SBG and TLS for the MRT project, making it a “must-own” stock along the value chain of this mega public infrastructure initiative.

We cut our fair value by 10% to RM2.36 (from RM2.61), which is premised on 10 times revised FY14 earnings per share, in line with our benchmark one-year forward target price-earnings ratio of 10 times to 16 times for the construction sector. — RHB Research, Oct 25

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This article first appeared in The Edge Financial Daily, on October 28, 2013.