News

Awarded RM296.4m contract for the construction of 2 towers of serviced apartments and ancillary buildings in Johor Bahru from IOI Properties. The project is expected to be completed by May-16.

Highlights

Major win… As part Kimlun’s construction division strategy, the management has been eyeing larger ticket project size to achieve better economies of scale. The latest contract is a major win as it represents 37% of FY12’s construction revenue and 25% of its previous outstanding order book of ~RM1.2bn.

3rd major win… This development marks Kimlun’s third major contracts win for the year. Hence, bringing YTD major jobs won to RM448m, which makes up 64% of our RM700m order book replenishment assumption for FY13.

12 sen/share… Assuming a PAT margin of 10%, this project translates to 12.3 sen/share for the company.

Visibility… Overall, Kimlun has an outstanding construction order book of ~RM1.5bn and ~RM440m manufacturing orders. This translates to ~1.9x and ~4.7x FY12’s construction revenue and manufacturing revenue respectively.

Risks

• Execution risk;
• Regulatory and political risk (both local and abroad);
• Rising raw material prices; and
• Unexpected downturn in the construction and property cycle.

Forecasts

Unchanged as the contract win is already part of our RM700m order book replenishment assumption for FY13.

Rating

BUY

Positives: (1) Bigger than expected contract wins. (2) Recovery in earnings margin. (3) Contribution from Cyberjaya property development.

Negatives: (1) Sharp slowdown in the property sector which may affect existing property-related project. (2) Longer than expected gestation period of new manufacturing facilities.

Valuation

Maintain Target Price of RM2.18 based on unchanged 10x FY13 earnings.

Source: Hong Leong Investment Bank Research- 22 Aug 2013