Kimlun foresees cement price hike eroding margins

KUALA LUMPUR (June 18): Construction firm Kimlun Corp Bhd expects a 2% profit margin compression in anticipation of a RM90 or 45% hike in bulk cement prices.

“The cement producer will increase the price for bulk cement by RM90 per tonne to RM290 per tonne, from RM200 per tonne,” said its chief executive officer Sim Tian Liang.

Speaking to reporters after Kimlun’s annual general meeting yesterday, Sim said the group has received the notice from Lafarge Malaysia Bhd and YTL Corp Bhd that the cement price increase was effective mid-June.

“This happens after the merger and acquisition [by the cement industry player]. They have already (wanted to) increased the cement price by 50% even the (current) demand for cement is weak. [What] if the demand is strong, the cement price would be sky-high. We don’t want that to happen,” Sim commented.

Sim urged cement producers to give the construction industry a grace period of three to six months, before implementing the price hike.

Kimlun’s latest annual report showed that its construction division’s gross profit margin fell to 11% in 2018 from 12.2% a year ago due to lower-margin projects.

Meanwhile, Sim said Kimlun is hoping to secure some contracts after the government revived some mega infrastructure projects, including the East Coast Rail Link (ECRL) and light rail transit 3 (LRT3).

“By reviving of these projects, together with the government’s commitment to building one million units of affordable housing in the next 10 years, it is good news for the construction sector,” he said, adding the group has submitted to pre-qualify for work packages under the ECRL project.

Overall, the group is bidding for projects worth RM2.5 billion, of which it had to date secured some RM250 million for its construction division and RM40 million for its manufacturing and trading divisions.

Kimlun’s construction and manufacturing outstanding order books are estimated at about RM1.9 billion and RM300 million respectively, including the Pan Borneo Highway, mass rapid transit Line 2 (MRT2) Sungai Buloh-Serdang-Putrajaya project and Singapore MRT (SMRT).

Sim said the group’s expertise in industrialised building systems (IBS) would enable it to continue to participate in building affordable housing. Currently, it has RM500 million to RM600 million worth of affordable housing projects in hand, including Rumah Selangorku and some private-sector projects.

On its property division, Sim said the group would continue to market its unsold stocks worth RM32 million of gross development value for its completed Hype Soho in Cyberjaya and Taman Puteri residential development in Pekan Nenas, Johor.

This article first appeared in The Edge Financial Daily, on June 18, 2019.

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