News

• Buys land in Johor. Kimlun announced that it has entered into an agreement to acquire 29 parcels of freehold land totalling 140.8 acres in Kota Tinggi, Johor for RM28.3m.

• Currently plantation land. The said lands are currently planted with oil palm. Kimlun intends to convert the land use title from agriculture to residential within one year from the completion of the acquisition.

Comments

• Details still sketchy. The proposed acquisition price translates to RM4.60 per sq foot. In terms of location, the said lands are located roughly 2km from the Kota Tinggi town centre. Kimlun intends to build residential properties on the said lands but development details are still sketchy at this juncture. Given the size of the lands, we reckon that the development plans could entail a township.

• Impact on net gearing. The proposed acquisition will increase Kimlun’s proforma net gearing from the current 23.2% to 30.3% which we deem manageable.

• Concerns over Johor slowdown. Given the lack of development details, we are neutral on the proposed acquisition. Nonetheless, we highlight that given the current property slowdown witnessed in the Johor, development of the said lands in the near future could prove challenging.

Risks

• On the construction side, while job wins for Kimlun has been strong YTD at RM422m, we are unconvinced that this momentum can be sustained given the slowdown in the Iskandar property market. As such, upside risk to our estimates would come from stronger than expected job wins.

Forecasts

• No changes to our estimates given the lack of development details for the proposed lands.

Rating

HOLD , TP: RM1.33

• While the momentum of job wins appears to have a good start for thus far into 2015, we remain unconvinced that this can be sustained throughout the year given the slowdown witnessed in the Iskandar property market.

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.

Source: Hong Leong Investment Bank Research - 14 May 2015