Period     1QFY13/3MFY13

Actual vs. Expectations   Although Kimlun’s 3MFY13 net profit of RM8.9m made up only 15% and 16% of ours and the street’s full year estimates respectively, we deem the results to be in line as 1Q is generally slower for its construction business. 

Dividends    No dividend was declared as expected.

Key Results Highlights   QoQ, Kimlun’s net profit dived 27% from RM12.2m to RM8.9m despite an improvement in its pre-tax margins (+0.6ppt) due to several factors: i) a dip in its revenue (-9%) underpinned by the decline in its construction revenue (-17%) due to the slowdown in construction activities during the festive season, i.e. Chinese New Year in February and ii) a  significant increase in its effective tax rate (+30.2ppt) to 24.8% due to the recognition of tax incentives in 4QFY12.

YoY,  the revenue grew 8% to RM214.4m underpinned by the better performance of its manufacturing and trading division, which saw a 127% increase in its revenue due to the recognition of the supply of segmental box girders (“SBG”) to KVMRT and tunnel lining segment (“TLS”) to Singapore. However, the overall net profit of the group fell 16% to RM8.9m as the pre-tax margin contracted 1.6ppt to 5.5% due to higher financing costs (+133%) and depreciation costs (+137%) incurred for its new factory.

Outlook    To date, Kimlun has secured a total order book replenishment of RM150m, making up 30% of our order book replenishment assumption of RM500m for FY13. Its current outstanding order book of c.RM1.6b could easily provide 2-year earnings visibility for the group.

Change to Forecasts    No changes to our earnings estimate. 

Rating  Maintain OUTPERFORM

Given the optimistic outlook on the construction sector, we believe that Kimlun will be able to meet our order book replenishment target of RM500m.

Valuation     We have raised our TP to RM2.28 based on a higher multiple of 9x FY14 PER (previously 8x FY14 PER) due to the company being able to ride on the positive development in the Iskandar region. During its peak (or back in 2011), Kimlun used to trade at a +2 Standard Deviation above its mean of 7x. 

Risks    Delays in executions and higher than expected building material prices.

Source: Kenanga