- We maintain BUY on Kimlun Corporation Bhd with a lower fair value of RM2.77/share (vs. RM3.20/share previously), following the weaker than expected 9MFY13 results.

- Kimlun posted a core net profit of RM22.9mil for 9MFY13, which is 39% lower than RM37.2mil last year. This made up 52% and 57% of our earlier and consensus full-year estimates, respectively.

- 9MFY13 group revenue was flattish at RM676mil YoY (vs. RM661mil in 9MFY12). This was due to a slower recognition of construction revenue (-12% YoY). Note that in 1HFY12, the group saw strong contributions from two big projects that had since been completed.

- Construction gross profit margin declined to 7% (vs. 9% a year earlier) due to a less efficient absorption of overhead costs and higher payroll costs. There was also additional capex for new equipment and costs incurred for the setting up of a cast yard.

- The slower construction revenue was mitigated by the manufacturing division (115% YoY topline growth) due to higher delivery of tunnel lining segments (TLS) and segmental box girders (SBG) for the KVMRT project. However, margins were squeezed (18% vs. 28% a year earlier) due to “carriage onward expenses” which were related to delivery cost of products.

- For the 9M period, Kimlun also booked a minor RM3mil in gross profit on the back of RM12mil in revenue for its maiden property project, Hyve in Cyberjaya.

- Despite a healthy balance order book of RM2.2bil as at end-Sept, the bulk of it would only be recognised next year onwards. This is because 68% of the total RM1.1bil new job wins were only secured in the 2H.

- We trim our FY13F-15F earnings by 10%-31% to account for lower margins, deferred recognition of construction jobs, and higher financing costs in relation to capex for new plants and equipment.

- However, we are not too concerned about its net gearing (0.6x as at end-Sept) as the group is undertaking a 1-for-4 rights issue with free detachable warrants that is expected to raise RM172mil.

- Potential jobs in the near-term include the TLS package (worth ~SGD100mil) for Singapore’s MRT Thomson line, which is expected to be awarded by year-end. 

Source: AmeSecurities