News

Secured 2 projects collectively worth RM325.5m:

(1) RM210m from UEM Sunrise for the construction of service apartments and offices in Puteri Harbour, Nusajaya. The project is expected to be completed by Mar-16.

(2) RM115.5m from IOI Properties for earthworks, piling works and structure works for 2 blocks of commercial buildings in Johor Bahru. The project is expected to be completed by Sep-14.

Highlights

Big win… Both these orders are a welcomed development following Kimlun’s earnings disappointment. The contract size is material as it makes up 40% of FY12’s construction revenue and 25% of its previous outstanding order book of RM1.3bn.

5th major win… The orders mark Kimlun’s 5th major contracts win for the year. Hence, bringing YTD jobs secured to RM1.08bn, exceeding our RM700m order book replenishment assumption for FY13.

6.8 sen/share… Assuming a PAT margin of 5%, this project translates to 6.8 sen/share for the company.

Earnings visibility… Overall, Kimlun has an outstanding construction order book of RM1.63bn and RM400m manufacturing orders. This translates to 2.0x and 4.2x 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

Although contract wins have exceeded our RM700m order book replenishment assumption for FY13, earnings contribution will only be material from FY14 onwards. Hence, we are keeping our estimates unchanged for now.

Rating

HOLD

Positives:

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

Negatives:

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

Valuation

Maintain Target Price of RM1.76 based on unchanged 10x FY13 earnings.

Source:Hong Leong Investment Bank Research - 9 Sep 2013