Kimlun Corp Bhd
(Sept 26, RM1.49)
Maintain “hold” with target price of RM1.44: The construction division’s order book dwindled from RM2.3 billion in financial year-end 2013 (FY13) to RM1.52 billion (in first half of FY14 (1HFY14), translating to a run rate of two times of FY13’s construction revenue), on the back of slower job wins year-to-date (YTD). Nevertheless, it is still looking to add RM600 million worth of contracts for the remaining months of 2014.

Despite the property headwinds, the company remains fairly positive on Phase 1 of its Medini project (which is due to be launched with an estimated gross development value of RM420 million by end-2014), given its cheaper pricing (RM750 per square foot (psf), vis-à-vis RM1,300 to RM1,500 psf in its neighbourhood), and the exemption in foreign restriction. On the other hand, the RM29 million acquisition of 386,499 sq ft of leasehold land in Shah Alam is expected to be completed by the fourth quarter (4QFY14), with Kimlun planning to build bungalows on the land and launching the development in 3QFY15.

The manufacturing sector had an outstanding order book of about RM270 million (as at end-1HFY14).

The manufacturing division’s prospects remain positive, thanks to the Singapore government’s target to double its rail network (from 178km currently to 360km by 2030) and plans to develop Phase 2 of  the deep tunnel sewerage system (with construction work expected to commence by 2016).

We took this opportunity to cut our FY14 net profit forecast by 13.7% to RM37.2million, largely to reflect higher effective tax rate. Despite its unexciting earnings outlook, we deem its current valuations as fair.

Hence, we are maintaining our “hold” call on the stock. Target price is cut by 6.5% to RM1.44 based on 10 times revised average FY14-FY15 earnings. — HLIB Research, Sept 26

This article first appeared in The Edge Financial Daily, on September 29, 2014.