2QFY20 CNL of RM10m brought 1HFY20 to a slight loss of RM2.9m – largely within both our/consensus full-year net profit estimate of RM26m as we expect 2HFY20 to fare much better on higher construction activities. We continue to like KIMLUN for its small earnings base and all-round involvement in either big infra projects or smaller scale affordable homes which would play to its advantage when pump priming initiatives commence. Maintain OP and TP of RM0.96.

Within expectations. 2QFY20 core net loss (CNL) of RM10m dragged 2HFY20 to a slight loss of RM2.9m. This set of numbers is well within our and consensus net profit expectations of RM26m as the loss is largely anticipated given the two months’ lockdown which impeded construction activities for the group. We expect 2HFY20 to fare much better as construction activities gradually normalise. Compared against June’s operating levels of 60-70%, August has improved to operating levels of 80+%. No dividends as expected

Highlights. QoQ, 2QFY20 CNL of RM10m was down from a profit of RM7m as the lockdowns of two months in 2QFY20 was longer than two weeks faced in 1QFY20. Despite being allowed to commence activities in May, construction activities only started picking up gradually from early June as workers had to undergo the compulsory Covid-19 testing in May. Unsurprisingly, 1HFY20 dipped into losses YoY due to the MCO lockdowns.

Order-book outlook. Forward earnings will be underpinned by outstanding order-book of RM1.4b in construction jobs (1.75x cover) and RM0.37b (1.5x cover) in manufacturing orders as of June 2020. YTD, Kimlun has replenished RM420m worth of construction jobs (against our target of RM500m) and RM200m worth of manufacturing orders (against our target of RM250m).

No change to earnings post results.

Maintain OUTPERFORM with an unchanged Target Price of RM0.96 based on 7x FY21E PER. We like KIMLUN for its small earnings base and all-round involvement in either big infra projects or smaller scale affordable homes which would play to its advantage when pump priming initiatives commence. Also, current FY21E PER of 5.9x is attractive given that it is also a name which offers exposure to the rising construction activities in Singapore.

Key risks for our call are: (i) lower-than-expected margins, and (ii) delay in construction works.

Source: Kenanga Research - 28 Aug 2020