Period  4Q14/FY14

Actual vs. Expectations  FY14 core net profit (CNP) of RM34.3m came in within our expectation but below consensus, at 105% and 93% of full-year estimates, respectively.

Dividends  Above expectation. The group proposed final single-tier DPS of 3.8 sen, higher than our forecast of 3.0 sen. At 3.8 sen, the stock’s dividend yield is at 3.0%.

Key Results Highlights  QoQ, 4Q14 CNP was relatively flat (+2.1%) at RM9.2m as it was dragged down by lower revenue from construction division despite higher contribution from the manufacturing segment. Construction division’s revenue was down by 8.1% due to slower construction progress following adverse weather in 4Q14.

 YoY, 4Q14 CNP declined by 32.3% due high base effect. To recap, the group’s net profit in 4Q13 was boosted by tax incentives.

 YTD, FY14 CNP declined by 6% dragged down by poor margins from construction and manufacturing segments.

Outlook  Management updated that KIMLUN currently has an estimated construction and manufacturing running orderbook of approximately RM1.2b and RM230m, respectively. The group also updated that it has unbilled property sales of RM100m from the Hyve project (75% taken up). Both running orderbook and unbilled sales could keep the group busy for the next 2 years.

 Despite the strong outstanding orderbook, we believe that the near-term outlook remains lacklustre, as profit margins in both construction and manufacturing segments are improving slower than expected.

Change to Forecasts  We are leaving our forecasts unchanged for now pending more clarifications from management next week when an analysts’ briefing will be held.

Rating Maintain UNDERPERFORM

Valuation  Maintain TP of RM1.28 based on unchanged ascribed FY15E PER of 8.5x. Our ascribed PER of 8.5x is at the lower end of the small cap construction peers’ range of 8x-10x

Risks to Our Call  Better-than-expected margins.

 Faster construction works

 Higher-than-expected orderbook replenishment 

Source: Kenanga