Results

• Kimlun posted 1QFY15 results with revenue of RM322.2m (- 3% YoY, +15% QoQ) and core PATMI of RM14.1m (+72% YoY, +54% QoQ).

• Note that 1Q last year saw a RM10.8m gain on disposal f rom its land in Nilai.

Deviation

• 1Q core PATMI made up 35% of our f ull year f orecast (31% of consensus) which is above expectations. This was primarily due to stronger than expected progress on its construction orderbook and better margins f or its manuf acturing segment.

Dividends

• None. Usually declared in 4Q.

Highlights

• Orderbook thinning. Kimlun currently sits on a total orderbook of RM1.2bn (construction: RM1bn, manuf acturing: RM230m), translating to only 1.1x cover on FY14 core revenue.

• Job wins sustainability uncertain. By our calculations, YTD job wins stand at RM422m, all of which were in the month of Jan. We remain cautious on its sustainability given the slowdown experienced in the Iskandar property market. As it is, we are already witnessing certain property developments in Iskandar being cancelled or delayed. This does not augur well f or Kimlun which derives the bulk of its jobs f rom property developers in the Johor region.

• Timing gap for manufacturing. The bulk of the segmental box girders (SBG) and tunnel lining segments (TLS) f or the KV MRT Line 1 has been delivered. With Line 2 only scheduled to begin in 2016, Kimlun’s manuf acturing div ision may see a gap in its orderbook. It intends to f ill this gap via contracts f rom Singapore’s MRT but we reckon that its value may not be as large compared to the KV MRT.

Risks

• Slowdown in Iskandar would hamper (i) construction division since Kimlun derives most of its jobs there and (ii) property division given the impending launch of Opus Medini.

Forecasts

• Given the better than expected results, we raise FY15 earnings by 7% but cut FY16 by 3% given its thinning orderbook cover.

Rating

HOLD, TP: RM1.39 ( )

• While 1Q results may have started strong, we remain sceptical on its sustainability. No doubt, Kimlun has a solid and prudent management team but the downturn at Iskandar will inevitably make it tough to rake in new job wins. The timing gap between MRT Line 1 and 2 doesn’t make matters any better either. These f actors have been ref lected in our earnings decline f or FY16 and FY17.

Valuation

• TP of RM1.39 (raised f rom RM1.33) is based on an unchanged 10x P/E multiple on mid CY16 earnings.

Source: Hong Leong Investment Bank Research - 29 May 2015