- We maintain BUY on Kimlun Corporation Bhd with a fair value of RM3.22/share – a 20% discount to our SOPderived value of RM4.03/share.

- Kimlun yesterday announced on Bursa Malaysia that its wholly-owned unit, Kimlun Land Sdn Bhd, has entered into a sales and purchase agreement to dispose nine parcels of agriculture land in Nilai for RM46.5mil.

- The buyer of the nine parcels of land, measuring 17.3 ha, is Bina Plastics Sdn Bhd.

- Kimlun said the disposal would help it unlock the value of its land bank and free up capital tied to the disposed property.

- Kimlun intends to use RM18.8mil (40%) from the proceeds to repay borrowings, and RM26.8mil (57%) for working capital.

- We view the disposal positively as it would help reduce Kimlun’s gearing, albeit marginally. Recall that the group is looking to invest RM35mil-RM40mil this year to upgrade its Johor plant and to purchase construction-related machineries. As at end-June, it has a net gearing of 0.6x.

- The Nilai land was previously earmarked for industrial development with an intended GDV of RM120mil-RM130mil, following the conversion of land title (from agriculture). Kimlun is expecting a gain of RM10.7mil from the disposal.

- With the disposal, capital can now be channelled towards the development of its maiden property project, HYVE in Cyberjaya (GDV: RM240mil) and its existing jobs at hand.

- To recap, HYVE was launched in Feb with a 70% take-up rate thus far. The project is expected to be completed in 2016 but we only expect meaningful contributions from next year onwards.

- Meanwhile, the civil contracts worth SGD1.1bil for the Thomson MRT line have been awarded this month, with the tunnel lining segment package worth SGD100mil (RM250mil) expected to be awarded by year-end.

- We like Kimlun as a proxy to the surge of construction jobs in Iskandar Malaysia and MRT jobs in Singapore and the Klang Valley.

- While earnings are expected to be muted in the 2H due to compressed margins, we see earnings accretion in FY14FFY15F, boosted by a record RM1.1bil of new job wins this year.

Source: AmeSecurities