Highlights

• Investor’s briefing. Last Friday, Kimlun hosted its bi-annual briefing post 4QFY14 results. To recap, FY14 core PATMI stood at RM34m (-4% YoY). PBT margin (adjusted for land sale gains) remained low at 4% in FY14 (FY13: 4.3%) compared to 6.8-9.8% posted from FY07-12. This was due to higher subcontract cost for high rise buildings and lower margin precast works for the KV MRT.

• Low base pick up. Kimlun’s orderbook stands at RM1.4bn (construction: RM1.2bn, precast: RM230m), implying a thin cover of 1.2x FY14 revenue. This follows from only RM410m (construction: RM270m, precast: RM140m) worth of jobs secured last year. Management is targeting to add RM700- 800m in new jobs for construction and RM100-120m for precast this year. Thus far, YTD job wins of RM422m appear to be on track.

• Cautious on Iskandar… Despite a good start to job wins YTD, we remain cautious given the slowdown at Iskandar as developers are holding back on launches given the weak sentiment. This has negative ramifications to Kimlun as it derives the bulk of its contracts from the Johor region.

• ...but not that bad. While management acknowledges that Iskandar has slowed down, they highlighted that developers have switched their product launches from high end residential to affordable homes and industrial buildings. This should partially help Kimlun manoeuvre through Iskandar’s dearth of contract flows.

• Timing gap for KV MRT. Kimlun’s precast division will face a timing gap between the completion of the MRT Line 1 (almost complete) and Line 2 which is likely to only begin in 2016. To avoid its Senawang plant being idle once Line 1 is complete, Kimlun will relocate some works for the SMRT Thompson Line in Singapore. Potential precast work this year is likely to come from Singapore (e.g. SMRT Thompson Line and the Deep Tunnel Sewerage).

Risks

• Iskandar slowdown would hamper orderbook replenishment potential. Gradually thinning margins are another concern.

Forecasts

• Unchanged as we feel there were no material briefing takeaways that would warrant a revision in our earnings.

Rating

HOLD TP: RM1.33

On the positive note, YTD job wins have started out strong. However, on the flipside, we remain cautious on its sustainability given Iskandar’s slowdown. As such, we retain our HOLD rating on Kimlun.

Valuation

• Our TP is unchanged at RM1.33 based on 10x FY15 earnings. This is at a slight discount to its mean P/E of 11x, justifiable we believe by the weak sentiment for Iskandar themed plays.

Source: Hong Leong Investment Bank Research - 9 Mar 2015