Results

• Kimlun reported 4QFY17 results with revenue of RM372.1m (+50% QoQ, +58% YoY) and earnings of RM24.2m (+70% QoQ, +0% YoY).
• Full year FY17 revenue totalled RM985.2m (+5% YoY) with earnings at RM68.6m (-16% YoY).

Deviation

• FY17 earnings made up 107% of our and consensus full year forecast which is slightly above expectations due to higher-than-expected construction orderbook execution in 4Q as newer jobs began to contribute.

Dividends

• First and final dividend of 5.5 sen was declared (FY16: 6.5 sen).

Highlights

• Healthy construction growth. Construction revenue and gross profit (GP) increased 14% and 12% YoY for FY17, driven by contribution from its newer jobs.
• Timing gap for manufacturing. FY17 manufacturing revenue and GP declined by 35% and 52% respectively. This was due to the timing gap between completion of deliveries for jobs in Singapore (underground power transmission and SMRT Thompson line) and commencement of that for the KV MRT2 in Malaysia.
• Orderbook remains healthy. Kimlun’s total orderbook stands at RM2.1bn comprising RM1.79bn for construction and RM340m for manufacturing. This translates to an overall cover of 2.1x on FY16 revenue. FY17 total job wins was strong in excess of RM1bn (FY16: RM1.6bn), surpassing its full year guidance of RM600-700m.

Risks

• Downward margin trend for the manufacturing division once deliveries for the MRT2 kicks in as these contracts generally command lower margins.

Forecasts

• Despite the slightly stronger-than-expected results, we keep our earnings forecasts unchanged as we have already factored in a pickup in orderbook execution for FY18-19. Rating Maintain BUY, TP: RM2.65
• We remain upbeat on Kimlun’s job flow outlook as the rollout of mega rail projects (i.e. ECRL and HSR) and affordable housing should benefit both its construction and manufacturing divisions.

Valuation

• Our unchanged TP of RM2.65 is based on 11x (mean) P/E tagged to FY18 earnings.

Source: Hong Leong Investment Bank Research - 28 Feb 2018