Period

1Q15

Actual vs. Expectations

1Q15 core net profit (CNP) of RM14.1m accounts for 30.6% and 31.1% of ours and street’s full-year estimates, respectively. Conservatively, we deem it broadly in line with our expectation as we expect the group’s earnings to normalize in upcoming quarters.

Dividends

None as expected.

Key Results Highlights

QoQ, 1Q15 CNP rose by 54.3%, thanks to higher contribution from construction and manufacturing segments. In the construction division, revenue was up by 26.5% driven by larger size projects’ billings. Moreover, we noticed the division delivered better profit margin by 0.4ppts to 6.7% mainly due to the orderbook entering mid-stage of construction. As for the manufacturing segment, gross profit increased by 37.7% following better profit margins in tunnel lining segment (TLS) orders in Singapore.

YoY, 1Q15 CNP shot up by 72.2% despite revenue being flattish (-3.2%). This is mainly due to better profit margins in manufacturing segment as outlined above.

Outlook

Stays bright as: (i) more upcoming affordable housing jobs in the Southern region of which KIMLUN is expected to participate, (ii) KIMLUN is one of the beneficiaries of the 11MP in which the group could participate in the railway’s material supply jobs, i.e. Segmental Girder Box as well as Tunnel Lining Segment, and (iii) KIMLUN is also expected to benefit from the Singapore MRT line extension.

Change to Forecasts

FY15E-FY16E net profit estimates remain unchanged at RM46.2m-RM49.9m.

Rating

Maintain OUTPERFORM

Valuation

We remain positive on KIMLUN’s outlook as we believe it is one of the contractors that will benefit from the recently announced 11MP.

We raise our TP to RM1.66 from RM1.53 previously after we roll over our valuation parameter to FY16 with unchanged ascribed PER of 10.0x. Our target PER is within the small-cap construction peers’ range of 10-14x.

Risks to Our Call

Below-than-expected margins

Delay in construction works

Lower-than-expected orderbook replenishment

Source: Kenanga Research - 29 May 2015