Kimlun Corp Bhd (Dec 23, RM2.14)

Maintain buy call with a fair value of RM2.58: Kimlun Corp Bhd’s nine-month financial period ended Sept 30, 2016 (9MFY2016) net profit of RM57.7 million broadly came in within our expectations, accounting for approximately 74% of our earnings estimate.                

Its 9MFY2016 revenue declined 14.2% year-on-year (y-o-y) mainly due to drop in billings from the construction division due to lesser work executed during the quarter under review while new projects secured are still at initial stage. Notwithstanding the lower revenue, operating profit was up 18.1% y-o-y at RM80.3 million, largely due to higher operating profit margin from the construction and manufacturing divisions.

Segmentally, the construction division recorded a 5.7% increase in 9MFY2016 operating profit y-o-y despite 18.8% y-o-y decline in revenue. Manufacturing, meanwhile, recorded higher revenue and profit due to increase in sales of industrialised building components for the Pengerang, Johor project, which offset the drop in sales of tunnel lining segment following completion of Singapore’s underground power transmission network, as well as absence of contribution from the Klang Valley mass rapid transit (MRT) Line 1 project. The property development division generated a small turnover and profit, mainly coming from its boutique residential development in Johor.

Construction and manufacturing remain the key revenue generators contributing 78.4% and 20.7% to the group’s revenue in 9MFY2016 respectively. Net gearing remained healthy at 0.1 times as at 9MFY2016, backed by a book value per share of RM1.66. Kimlun also generated a positive net operating cash flow of RM13.5 million in 9MFY2016.

We maintain our FY2016 and FY2017 earnings estimates at RM78.3 million and RM84.6 million respectively at this juncture. Earnings remain well supported by its order book of RM1.78 billion for construction and RM0.28 billion for manufacturing.

Looking ahead, we continue to be upbeat about the prospects of Kimlun. It has a proven track record in securing projects for both its two key divisions. The group had earlier secured a number of contracts that included the Pan Borneo Highway (Sarawak) project — Serian Roundabout to Pantu Junction project, in which it has a 30% interest, some residential projects in Johor and Selangor as well as a hospital construction job, to name a few.

The manufacturing division has recently bagged a RM52.8 million job to supply tunnel lining segment for the Klang Valley MRT Line 2 project. We believe the group will secure more jobs in the coming future from various opportunities that included the Klang Valley MRT Line 2, light rail transit Line 3 as well as MRT projects in Singapore. — ZJ Research, Dec 26

This article first appeared in The Edge Financial Daily, on Dec 28, 2016. Subscribe to The Edge Financial Daily here.

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