Period  4Q13/FY13

Actual vs. Expectations KIMLUN recorded 4Q13 net profit of RM13.5m (+95.8% QoQ, +9.6% YoY) which brought its FY13 NP to RM36.4m (-26.4% YoY).

 The results came in above expectations, as it makes up of 109% of the consensus full year earnings and 115% of our numbers.

 The earnings outperformance was mainly due to: (i) better-than-expected revenue in the manufacturing and trading segment (+118% YoY) and (ii) lower-than expected effective tax rate.

Dividends  A final single-tier dividend of 3 sen was proposed which is within our expectations.

Key Results Highlights YoY, the 4Q13 revenue was up by 16.8% with the growth led by its manufacturing segment (+96.6%) despite a flat growth (+0.8%) from its construction segment. The improvement in manufacturing segment was mainly due to recognition of revenue from the supply of segmental box grinders (SBG) and tunnel lining segments (TLS”) to KVMRT in the current quarter. However, a lower GP margin in the construction segment (-2.5ppt) coupled with the higher operating cost (+62.7%), resulted in the PBT margin being compressed (-1.4ppt) from 4.8% to 3.4%.

 QoQ, the group recorded a 95.8% jump in earnings, thanks to a higher recognition of revenue from projects in the construction segment (+31.6%) and the further recognition of tax incentives.

 YTD, FY13 revenue grew slightly by 6.1%, underpinned by the growth in its manufacturing and property development segments. However, profit margins were eroded due to the higher cost of sales (+7.2%), higher operating cost (+53.0%) and a higher finance cost (+68.5%). As a result, both PBT and NP fell by 37.2% and 26.4%, respectively.

Outlook  Kimlun’s current outstanding orderbook of c.RM2.1b remains healthy and it will provide earnings visibility for the next two years.

 We are expecting more meaningful contribution from its maiden property development project in Cyberjaya (The Hyve) in FY14.

Change to Forecasts No changes to our FY14E earnings estimate for now, pending further details but we have adjusted our EPS numbers, taking into account of the rights issue effect. (Please refer to the Kimlun’s report dated 1/11/2013 for details)

Rating Downgraded to UNDERPERFORM

 We are downgrading our recommendation on Kimlun to UNDERPERFORM from MARKET PERFORM as its 1:4 rights issue (ex-date: 14/2/2014) had caused some dilutions in the EPS, lifting its underlying valuation.

Valuation  Taking the potential dilution impact into consideration, our TP has been adjusted to RM1.55 (from RM1.93 previously) based on an unchanged 9x FY14 PER.

Risks to Our Call Faster construction works.

 Better raw material prices

Source: Kenanga