Period    3Q12/9M12

Actual vs. Expectations The 9M12 net profit of RM37.2m came in within our and the consensus estimates, accounting for 79% of ours and the consensus' FY12E net profits of RM47.3m and RM47.4m respectively.

Dividends   No dividends were declared during this quarter.

Key Results Highlights   YoY, Kimlun's net profit continues to grow by 20% from RM31.0m to RM37.2m underpinned by the robust growth of 44% in its revenue of RM661.1m albeit a margin compression of 1.5ppt from 12.2% to 10.7%. The robust growth in the revenue was mainly due to the recognition of construction projects in FY11 and contribution from new projects secured in FY12 while the margin contraction was mainly due to a lower gross profit derived from its construction division.

 QoQ, the 3Q12 net profit declined by 20% from RM14.7m to RM11.8m due to a lower revenue recognised from its construction division, which saw a drop by 13.7% to RM192.9m (previously RM223.5m) as certain new projects have yet reached their peak levels yet.

 

Outlook   Its current order book remains strong at RM1.7b, which will provide earnings visibility for the group up to FY14. We believe the huge order book will keep Kimlun busy throughout these years.

 We believe that Kimlun will continue to bid for more building projects with better margins in Johor and Klang Valley. With its expertise in precast construction, we believe this will enable it to stand a higher chance to secure government related projects and high-rise residential projects.

Change to Forecasts    There are no changes to our FY12-13E earnings estimates. 

Rating   MAINTAIN OUTPERFORM

 Outperform recommendation maintained as it has a potential upside of 29% to our Target Price of RM1.77. The strong order book provides a good earnings visibility for the group. 

Valuation    We are maintaining our Target Price of RM1.77 based on a 8x PER on its FY13E EPS of 24.7 sen.

Risks   Higher than expected building material costs.

 Stiff market competition that could further lower its margins. 

Source: Kenanga