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Tuesday, September 17, 2013

Kimlun Corporation - Even better days ahead BUY


- We maintain BUY on Kimlun Corporation Bhd with a slightly higher fair value of RM3.22/share (vs. RM3.20/share previously).

- We tweak our FY13-FY15 earnings to reflect new order wins but also lowered margins due to less efficient absorption of overhead costs, higher depreciation and payroll costs.

- To recap, Kimlun has won a total of RM1bil new jobs this year, surpassing our previous assumption of RM650mil. The bulk of these (~RM680mil) was secured in the 2H following accelerated construction works after the general election.

- In a recent briefing, management said it is expecting to secure another RM50mil-RM100mil worth of jobs by yearend. As such, we have increased our new order book assumption to RM1.1bil for FY13F but the bulk of the jobs would only be progressively billed from FY14F onwards.

- As at end-June, Kimlun had an outstanding order book of RM1.7bil (construction: RM1.3bil, manufacturing: RM400mil).

- Management noted that it is investing in a new “curing technology” at its Johor plant in order to meet new standards for Singapore MRT jobs. The group is guiding for a capex of RM35mil-RM40mil for this year before normalising to RM20mil in FY14F.

- Notably, we understand that the main contractor of Singapore’s Thomson MRT line is expected to be appointed soon. We see Kimlun as a frontrunner to win the tunnel lining segment (TLS) package, estimated to be worth SGD100mil (RM250mil). The award could come out by year-end.

- As for its property arm, management noted that 70% of its 51%-owned HYVE project has been sold (GDV:RM240mil). We only expect meaningful contributions from next year onwards. Meanwhile, development plans for its 5.3-acre land in North Medini are not finalised and would only be launched in end-2014 or 2015.

- We continue to like Kimlun as a proxy to the surge of construction jobs in Iskandar Malaysia and MRT jobs in Singapore and the Klang Valley.

- We maintain BUY on Kimlun with a slightly higher fair value of RM3.22/share – a 20% discount to our SOPderived value of RM4.03/share . At the current level, it is trading at 5x-11x PEs for FY13F-15F.

Source: AmeSecurities

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