News  Yesterday, Kimlun announced that its wholly owned subsidiary, Kimlun Land Sdn Bhd has entered into a Sale and Purchase Agreement with Bina Plastic Industries Sdn Bhd for the disposal of nine parcels of freehold agriculture land on en-bloc basis for a total cash consideration of RM46.5m.

Comments  We are rather surprised with the news as we did not expect Kimlun to dispose off the 42.7 acres of agriculture land in Nilai which they acquired back in Nov-11 for development purposes. However, we are positive with the move as it allows Kimlun to unlock the value of its land bank and free up the capital which is committed in the land to meet the working capital needs of the group.

 The land sale of RM46.5m translates to a sale price of RM25 psf while the aggregate net book value of the land stood at RM29.6m or RM15.93psf and Kimlun would be netting a net gain of RM10.7m from the sale. Post-disposal, Kimlun would be utilising 57% of the gross proceeds for working capital needs while the remainder would be allocated for debt repayment and land disposal costs and its net gearing ratio is expected to come down by 0.07x from its current level of 0.60x to 0.53x.

Outlook  Kimlun’s total outstanding orderbook stands at the c.RM2.0b mark (construction: RM1.67b, manufacturing: RM400m), enough to last Kimlun for the next two years and its property project in Cyberjaya is expected to see some positive contribution in 2H14.

Forecast  No changes to our earnings forecasts.

Rating   Maintain MARKET PERFORM

Valuation  We are keeping our TP of RM1.93 based on an unchanged 9x FY14 PER.

Risks to Our Call  Delays in executions and higher-than-expected building material prices. 

Source: Kenanga