KUALA LUMPUR (June 29): Hong Leong Investment Bank Bhd (HLIB) has raised its target price (TP) for Kimlun Corp Bhd shares to 90 sen from 52 sen and upped its earnings forecasts for the construction company after the builder reported a first-quarter net profit, which beat HLIB's estimates.

In a note today, HLIB analyst Jeremy Goh said the research firm upgraded its rating for Kimlun shares to "buy" from "hold".

"MCO's (Movement Control Order) impact was not as bad as expected," Goh said.

Last Friday, Kimlun said its net profit fell to RM6.6 million for the first quarter ended March 31, 2020 (1QFY20) from RM15.93 million a year earlier. Kimlun said revenue was lower at RM245.33 million versus RM318.56 million.

Today, Goh said Kimlun's 1QFY20 core earnings of RM6.6 million accounted for 33% of HLIB's full-year forecasts and 14% of consensus full-year estimates. He said Kimlun's 1QFY20 core earnings were above HLIB's but below consensus expectations.

"The results beat were top line-driven as we were too conservative on progress billings assumptions in attempts to factor in the MCO impact.

"Raise FY20 earnings by 41.5% as the MCO impact was less profound than initially expected. The higher TP is derived after rolling forward earnings to FY21 to reflect a more normalised earnings base for the company as well as pegging to a 6.8 times target P/E (price-earnings) multiple (five-year mean)," he said.

Meanwhile, Kenanga Investment Bank Bhd analyst Lum Joe Shen wrote in a note today that Kimlun's 1QFY20 core net profit of RM7 million was within Kenanga's expectation at 28% of FY20 earnings but below consensus' forecast at only 16% of full-year estimates.

Lum said there is no change to Kenanga's earnings forecasts for Kimlun post results' announcement. The analyst said Kenanga maintained its "outperform" call for Kimlun shares with an unchanged TP of RM1.

"We like Kimlun for their small earnings base and all-round involvement in either big infra projects or smaller-scale affordable homes which would play to their advantage when pump priming initiatives commence," Lum said.

At Bursa Malaysia today, Kimlun shares were traded unchanged at 72.5 sen for a market capitalisation of RM246.36 million. The stock saw 112,200 shares traded.

Malaysia's MCO, which was initially scheduled between March 18 and 31, requires non-essential businesses to stop operations, while the public was ordered to stay at home to curb the Covid-19 outbreak.

On March 25, Prime Minister Tan Sri Muhyiddin Yassin said the government decided to extend the MCO until April 14, because updates from the National Security Council and the Health Ministry indicated an increase in Covid-19 cases.

On April 10, Muhyiddin said the government was extending the MCO until April 28.

On April 23, Muhyiddin said the MCO would be extended for another two weeks until May 12.

On May 4, news reports, quoting Senior Minister (Security Cluster) Datuk Seri Ismail Sabri Yaakob, indicated that regulations under phase four of the MCO were null and void with the commencement of the Conditional Movement Control Order (CMCO) or phase five of the MCO.

On May 10, Muhyiddin said the CMCO would be extended to June 9.

On June 7, Muhyiddin said the CMCO scheduled to expire on June 9 would be replaced with the Recovery Movement Control Order beginning June 10 until Aug 31.