- We maintain HOLD on Kimlun Corp Bhd with an unchanged SOP-based fair value of RM1.56/share.

- Kimlun posted a net profit of RM35.9mil for 9MFY14, which is 57% higher than RM22.9mil a year earlier.

- Excluding an EI gain of RM10.8mil for the disposal of land in the 1H – 9M core net earnings would have been RM25.1mil. Earnings are largely in line with both our and consensus forecasts.

- Revenue for the 9M period rose 39% to RM939.3mil (from RM676.1mil a year earlier) due mainly to higher progress billings from construction jobs that it secured last year.

- Sequentially, earnings had improved 20% to RM9mil for 3QFY14 (from RM7.5mil in 2QFY14) while revenue declined by 5% to RM294.8mil.

- Construction division remained as the main contributor, making up 76% of total 9M revenue. Gross profit margin for the segment continued to contract, to 5.9% (from 6.9% a year earlier) although it improved by ~1ppt on a QoQ basis.

- Its manufacturing division also saw gross profit margin contracting by 2.1ppts (on a YoY basis) on the back of a 6.5% growth in revenue. This was mainly attributed to higher depreciation costs for its machineries.

- On a more positive note, its property segment saw gross margin improve 3.1ppts YoY to 29% for the 9M period, due to lower advertising and sales commission costs.

- As at end-Sept, the group had secured ~RM150mil worth of new construction jobs (vs. last year’s record new order book of RM1.1bil). We do not expect any major construction job announcements for the rest of 2014, given the macro slowdown in the Johor property market.

- In any case, its balance order book of RM1.5bil should keep the construction division busy.

- As at end-Sept, its sole HYVE project in Cyberjaya (GDV: RM235mil) had a take-up rate of 72% with unbilled sales of RM118mil.

- While Kimlun was one of the key suppliers of segmental box girders and tunnel lining segment for KVMRT1, we only expect any packages for the upcoming KVMRT2 to come earliest in 2016. We also do not foresee any exciting prospects in the near term given the slowdown in the Johor property market. Hence, we maintain HOLD.  

Source: AmeSecurities