News

Kimlun has won another apartment project in Johor Bahru from Country View Bhd for RM115.5m. The project is expected to be completed by Dec-15.

Highlights

8th win… The latest contract award marks Kimlun’s 7th major construction award for FY13 (based on Bursa announcements). It is of decent size, making up 14% of FY12’s construction revenue and 6% of its previous outstanding construction order book of RM1.85bn. YTD, construction order book replenishment of >RM1bn (see Table below) has beat our expectations of RM700m for FY13. However, we are more concerned on the execution process.

Strong visibility… Overall, Kimlun has an estimated outstanding construction order book of RM1.96bn and RM340m manufacturing orders. This translates to 2.4x and 3.6x 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, pending margin recovery.

Rating

HOLD

Currently, Kimlun is experiencing growing pains and the proposed fund raising will allow it to emerge stronger with a recapitalised balance sheet instead of relying on borrowings. In view of the attractive discount of RM1.10 rights issue subscription price and potential further upside from the free warrants, we are favourable on taking up the rights issue. However, we are maintaining our HOLD call on to the stock at this price level.

Valuation

Maintain TP of RM1.76 (theoretical ex-rights TP of RM1.63) based on unchanged 10x mid-FY14 earnings.

Source: Hong Leong Investment Bank Research - 2 Jan 2014