Thursday 28 Mar 2024
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This article first appeared in Capital, The Edge Malaysia Weekly, on October 3 - 9, 2016.

 

KIMLUN Corp Bhd’s share price is up 57.3% year to date, closing at RM2.17 last Wednesday. While this is 4% off its recent high of RM2.26 on Sept 26, it is 80.8% above its 52-week low of RM1.20 on Sept 30 last year.

There is still upside potential, underpinned by its sizeable construction order book, which stood at RM1.93 billion as at June 30 this year. That is enough to “keep the company busy for the next three years”, RHB Research Institute says in a Sept 22 note.

RHB is one of the six analysts with a “buy” call on the engineering and construction service provider, which specialises in industrial building systems (which are booming in Malaysia and Singapore) and precast concrete products. Excluding Maybank Kim Eng Research’s RM1.70 target price, which has been exceeded, target prices range from RHB’s RM2.39 to DBS Vickers Research’s RM2.87, Bloomberg data shows. That implies 10.1% to 32.3% upside potential.

Those who agree with this bullish projection might consider its warrant, Kimlun-WA, which fetched a 16.6% premium to the underlying stock as it closed at 85 sen last Wednesday. Kimlun-WA has a RM1.68 strike price, one-to-one conversion ratio and over seven years to run before expiring on March 12, 2024.

Kimlun-WA has had a good run the past year. At its recent high of 88 sen last Tuesday, the warrant is up 144% or 2.4 times from 36 sen on Oct 2 last year.

If Kimlun rises 32.3% to the highest RM2.87 target price, Kimlun-WA should theoretically be worth 40% more or RM1.19, assuming zero premium to the underlying shares. The upside is higher should the warrant continue to fetch a premium to the mother share.

Kenanga Research, which has a RM2.44 fair value for Kimlun, says it is “a good proxy for the booming local construction sector, given its involvement in MRT2 (supply of precast concrete segments), Pan Borneo Highway and the construction of affordable housing”.

Kimlun’s earnings profile “has improved tremendously over the last 12 months”, Kenanga writes in a Sept 22 note, adding that the construction unit no longer relies on residential jobs but has expanded to the construction of hospitals (Gleneagles Medini), a shopping mall (IGB’s Southkey Megamall) and hostels (Sime Darby’s Pagoh Education Hub) as well as infrastructure (a section of the Pan Borneo Highway via a 30%-owned venture with Zecon). Its manufacturing unit has widened its product offering to include rail sleepers (for the Thomson Line in Singapore) and parapet walls.

Risks include lower-than-expected job wins and margins, RHB says. 

 

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