Results

Broadly inline. 1H Core PATAMI came in at RM16.6m, increased by 4% yoy, making up 39 and 32% of HLIB and street’s estimates respectively.

Deviations

We deemed the result broadly in line as we expect subsequent stronger quarters due to difference in timing of recognising project earnings.

Dividends

None.

Highlights

Result highlight. 2QFY14 revenue surged by 32% YoY driven by strong progress in construction, increased sales of tunnel lining for the KVMRT project coupled with development progress on Hyve in Cyberjaya.

Construction margin remain weak. Despite topline grow at 36% yoy, GP margin fell from 7% to 5% due to a lower margin works under the scope of sub-contractors services, which make up the bulk of its RM1.02bn contract wins for FY13. Construction outlook remain positive as the RAPID project is expected to drive infrastructure and building works in Johor Bahru which will benefit Kimlun given its strong presence in Iskandar Malaysia. In addition, the implementation of second line MRT should help to potentially replenish its orderbook in future.

Healthy visibility but... Topline should remain healthy as Kimlun has an estimated outstanding construction/manufacturing order book of RM1.79bn, translating to ~1.9x FY13’s construction/manufacturing revenue coupled with estimated unbilled property sales of RM123m from the Hyve on a 70% take up rate. However, key is still ability to demonstrate stable margin.

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.

Rating

HOLD

Despite unexciting earnings outlook, we deem its current valuations as fair and maintain our HOLD call.

Valuation

Maintain TP of RM1.54 based on unchanged 10x average FY14-FY15 earnings.

Source: Hong Leong Investment Bank Research - 29 Aug 2014