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Monday, February 29, 2016

AmInvestment retains Buy for Kimlun with higher fair value

KUALA LUMPUR: AmInvestment is retaining its Buy call on construction company Kimlun Corp Bhd with a higher fair value of RM2.28 a share from RM2 a share earlier, pegged at 10 times FY16F price-to-earnings.

It said on Monday that Kimlun reported core earnings of RM71mil for FY15 – up 110% from RM34mil a year earlier. Earnings surpassed both the research house and market expectations by 6% and 21% respectively.

Kimlun saw a marked improvement in pretax margin to 8.9% vs. 5% last year due mainly to the execution of better margin projects as well as low material and fuel prices.

Hence, Kimlun showcased a strong bottomline despite a 13% decline in revenue.

Sequentially, revenue fell 4% to RM232mil. Nevertheless, profit rose 9% as profit before tax margin improved 0.5ppt to 11.5%.

Kimlun proposed a final single-tier dividend of 5.8 sen/share – representing a 25% PATMI payout (FY14: 3.8 sen).

All in, gross margins for the respective construction and manufacturing divisions saw considerable improvements. Notably, Kimlun has been embarking on projects which require less specialist works, which helped to improve its construction margins.

AmInvestment pointed out Kimlun also benefited from a forex gain of RM6.3mil from the group’s sales to Singapore.

As at end-Dec, the group had an outstanding construction and manufacturing order books of RM900mil and RM170mil, respectively.

Last year, the group secured RM750mil worth of new construction jobs. This year, management is hoping to secure RM700mil- RM800mil (excluding highways) worth of jobs for its construction on the back of a strong tender book of more than RM1bil (50% in KlangValley, 50% in Johor).

“Prospects include work packages for RAPID (mainly infrastructure and support buildings), Pan Borneo highway, SUKE, DASH as well as landed properties in Johor.

“Kimlun is expected to supply segmental box girders (SBG) and tunnel lining segments (TLS) products for the KVMRT2 given its track record (KVRMRT1 supply: RM270mil) and available capacity at its Senawang plant (~30% utilisation rate),” it said

Apart from that, Kimlun is looking to supply products for the Thomson and Eastern MRT lines in Singapore.

Hyve’s has a take-up rate of 80% with unbilled sales amounting to RM11mil. The project will be completed in 1Q. Contributions to the division moving forward will mainly come from its recentlylaunched landed homes project in Pontian (GDV: RM48mil).

AmInvestment has an FY16F order book replenishment target of RM650mil and RM250mil for its construction and manufacturing arms, respectively.

“Given the prospects in Johor and Klang Valley, we are optimistic that Kimlun will be able replenish its order book.

“We believe margins are sustainable given the current low material and fuel prices as well as job mix; the stronger Singapore dollar will also benefit Kimlun. To this end, we have adjusted our PBT margin assumption slightly upwards to ~10% (from 9% earlier) – resulting in 14% increase for FY16F earnings. Maintain Buy,” it said.

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