Kimlun Corp Bhd
(Jan 23, RM1.35)
Maintain hold with a lower target price (TP) of RM1.45 from RM1.56: We maintain “hold” on Kimlun Corp with a lower sum-of-parts (SOP)-based fair value of RM1.45 per share (compared with RM1.56 per share previously) as we roll forward our base year to financial year 2015 forecast (FY15F).

Last Thursday, Kimlun secured a RM230.7 million job from Nusajaya Heights Sdn Bhd (subsidiary of UEM Sunrise Bhd) for the construction of affordable apartments in Johor. 

The job is expected to be completed by August 2017. 

This has brought its new order book win to RM440 million for FY15F, following two jobs that it secured just last week. The jobs flow is positive following the lull in new jobs win last year. 

In our recent meeting with the management, it noted that it will bid more actively for jobs this year. To this effect, the group is looking at securing RM600 million to RM800 million worth of new jobs this year (FY14: RM270 million, FY13F: RM1.1 billion).

The management noted that developers in Johor are moving towards launching affordable homes amid the general slowdown in the state, while industrial developments continue to be in demand.

Nevertheless, we have a conservative new order win of RM600 million for this year (compared with its tender book of RM500 million) as we remain cautious about the property outlook in Johor. 

We estimate a balance order book of about RM1.4 billion currently to keep the group busy for FY15F to FY16F. 

The management expects its construction gross margins to stabilise at the current level (about 6%) following the contraction from 11% in FY11 (due to higher operating costs incurred for high-rise jobs). 

Gross margin for its manufacturing division is also expected to improve slightly (nine-month of FY14:16%) as it completes production of the segmental box girders (SBGs) for the Klang Valley Mass Rapid Transit Sungai Buloh-Kajang Line (Line 1) (KVMRT1) in the first quarter of FY15. Note that the SBG commands lower margins compared with the tunnel lining segments. 

Kimlun is looking to secure more packages for the Singapore’s MRT Thomson line this year. It has to-date secured three packages worth S$43 million (RM115 million) for the Thomson line. Other potential jobs include the proposed deep tunnel sewerage system in the island state. 

While Kimlun is in good position to secure jobs for the upcoming KVMRT Line 2 (KVMRT2) project, we do not foresee tenders to come out anytime soon. 

We maintain “hold” given the current macro slowdown in the Johor property market; we also do not foresee tenders for KVMRT2 to come anytime soon while margins are expected to be flattish moving forward. — AmResearch Sdn Bhd, Jan 23

This article first appeared in The Edge Financial Daily, on January 26, 2015.