- We maintain BUY on Kimlun with a lower fair value of RM2.00/share (vs. RM2.18/share previously), based on a 20% discount to our SOP value.

- Kimlun posted net profit of RM36.4mil for FY13F, which is within consensus expectations and 20% higher than our estimate.

- The lower earnings are mainly attributed to lower recognition of construction jobs during the year, higher depreciation costs for newly incurred equipments, higher payroll costs and lower gross profit margins.

- While revenue increased by 6% YoY to RM951mil, its bottom line dipped by 26%. This is due mainly to lower margins for both its construction and manufacturing divisions.

- Revenue for its construction arm fell by 9% YoY to RM740mil. Gross profit margins for its construction declined to 9% for 10% a year earlier due mainly to higher capex for acquisition of machineries (which resulted in higher depreciation) and higher payroll costs.

- As for its manufacturing arm, revenue rose by 118% YoY to RM191mil due to higher recognition for the supply of segmental box girders (SBG) and tunnel lining segments (TLS) to the KVMRT project. However, margins fell by 6ppt to 19%.

- FY13 also saw the maiden contribution of RM9.3mil (2% of total revenue) from its HYVE project, with a 26% gross profit margin.

- We expect earnings to improve in FY14F as it begins to progressively recognise contributions from the new jobs it won last year. Recall that 70% of its record new order wins of RM1.1bil were only secured in the 2H.

- Upcoming jobs in the near term includes the Thomson MRT line with a TLS package potentially worth ~SGD100mil. Its Johor plant is currently running at an 80% utilisation rate, but the group will be able to meet orders for Thomson line at its Senawang plant (50% utilisation rate) as well.

- As at end-Dec 2013, Kimlun has an estimated outstanding order book of RM2.3bil. Given the large size of jobs of hand, we have trimmed our FY14F new order book to RM700mil. We only expect any new order wins to flow through in the 2H. Maintain BUY.

Source: AmeSecurities