Journey to Wealth
Kimlun Corporation - 1H12 within expectations
Period 2Q12/1H12
Actual vs. Expectations
The 1H12 net profit of RM25.3m came in within ours and the consensus' estimates, accounting for 54% of ours and the consensus' FY12E net profits of RM47.3m and RM46.5m respectively.
Dividends No dividend was declared during the quarter.
Key Results Highlights
YoY, the 1H12 revenue, which improved substantially by 49% from RM300.2m to RM446.1m, came in slightly above expectation, making up 58% of our FY12E of RM771.8m. This was due mainly to the rise in the construction and manufacturing revenue, which jumped by 24% and 42% respectively due to the recognition of construction projects in FY11 coupled with the increased sales of TLS and jacking pipes to Singapore.
QoQ, the 2Q12 net profit improved by 39% to RM14.7m (previously RM10.6m) on the back of the revenue growth of 25% supported by the improvement of 3.3ppt in its manufacturing operating margin to 28.5% (previously 25.2%).
Outlook Its current order book remains strong at RM1.8b, which will provide earnings visibility for the group up till FY14. We believe the huge order book will keep Kimlun busy throughout the year.
We believe that Kimlun is eyeing for more building projects with better margins in Johor and Klang Valley. With its expertise in building precast, this will benefit it o secure government related project and high rise residential projects.
Change to Forecasts
There are no changes to our FY12-13E earnings estimates.
Rating Maintain OUTPERFORM
Outperform recommendation is maintained due to the potential upside of 26% to our Target Price of RM1.77. Its strong order book provides a good earnings visibility for the group.
Valuation We are maintaining our Target Price of RM1.77 based on 8x PER of its FY13E EPS of 24.7 sen.
Risks Higher than expected building material costs
Stiff market competition, which could further lower its margins.
Source: Kenanga
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