- We maintain BUY on Kimlun Corporation Bhd with an exrights fair value of RM2.18/share (vs. cum-rights RM2.52/share previously).

- Kimlun’s renounceable 1-for-4 rights issue of 60.1mil new shares (KIMLUN-OR), which goes ex today.

- Note that the rights have an issue price of RM1.10/rights share. The trading of rights will commence from 19 Feb until 26 Feb.

- The 1-for-4 rights issue comes with 60.1mil free detachable warrants on a one-warrant-for-one-rights share subscribed basis. The warrants have an exercise price of RM1.68 and can be converted over a period of 10 years.

- The rights issue is expected to raise RM66.1mil which would mainly be used for working capital. Meanwhile, the warrants are expected to raise RM101mil.

- With the rights issue, Kimlun’s share base will increase from 240mil to 300mil. Assuming the full conversion of warrants, the fully-diluted share base is 360mil.

- Incorporating the rights issue, Kimlun’s FY14F-FY15F EPS are diluted by 20%.

- The exercise is timely as the proceeds will be used for working capital for jobs in hand and prospective ones. Recall that Kimlun won a record RM1.1bil worth of new jobs last year.

- We expect earnings to recover strongly in FY14F as Kimlun will begin recognising contributions from the new jobs it won last year. Recall that 70% of the new jobs were only secured in the 2H of FY13.

- Prospective jobs in the near term includes the Thomson MRT line with a tunnel lining segment package potentially worth ~SGD100mil.

- We understand that its Ulu Choh plant in Johor is currently running at an 80% utilisation rate, but the group will be able to meet orders for Thomson line at its Senawang plant (at ~50% utilisation rate to supply the KVMRT2) as well.

- We have a new order book assumption of RM900mil-RM1bil for FY14F-FY15F. We maintain our numbers for now as we await the release of its FY13 results on 27 Feb.

Source: AmeSecurities