News  Yesteday, Kimlun announced that its wholly-owned subsidiary, SPC Industries Sdn Bhd has been awarded a SGD20.52m (c.RM51.3m) contract from Shanghai Tunnel Engineering Co. Ltd. for the supply and delivery of precast concrete segment (TLS) to Contract T206, Thomson Line of Singapore MRT (SMRT) system.

 The supply of the TLS is expected to spread over a period of approximately 36 months.

Comments  We are neutral on the contract win as it makes up part of our FY14 manufacturing orderbook replenishment assumption of RM200m.

 Assuming a conservative net margin of 10%, this contract should translate into RM5.1m to Kimlun’s bottom line.

 We also understand from the management that the upcoming Thomson Line and the Eastern Region Line comprise a total length of 51km, and the total TLS requirement for this line is estimated at SGD130m. We believe similar projects could be awarded to Kimlun at the later part of the year, based on its experience and good track record for the ongoing Downtown Line.

 Should the group manage to secure more contracts for the Thomson Line (which we believe is likely to happen), this would help to sustain its manufacturing segment, especially upon completion of production for the KVMRT project by early-2015.

Outlook  This recent contract win has further boosted Kimlun’s total outstanding orderbook closer to RM2.3b, providing earnings visibility for the next two years.

 Earnings in the property division should pick up in FY14, thanks to its strong unbilled sales of RM125m from its maiden property development, The Hyve in Cyberjaya.

Forecast  Maintain core earnings forecast for FY14E at RM51.6m as the contract value is well within our orderbook replenishment assumptions.

 We also introduce our FY15 net profit estimate of RM56.1m (+8.7% YoY).

 Rating Maintain UNDERPERFORM

  Post rights issue, there is a major EPS dilution, affecting valuations adversely.  

Valuation  We are maintaining our target price of RM1.55 based on an unchanged 9.0x PER on its FY14 EPS of 17.2 sen.

Risks to Our Call  Higher-than-expected construction and property margins

 Lower-than-expected raw material costs.

 Faster-than-expected construction works.

Source: Kenanga