News 

Kimlun has secured a RM87.74m apartments and ancillary buildings project in Johor Bahru from Setia Indah S/B (a subsidiary of SP Setia). Construction works are expected to be completed by Jan-15.

Comments 

Decent win  The latest contract win is a good start for Kimlun for FY13. The order translates to ~15% FY11’s construction revenue and ~7% of its existing RM1.3bn construction order book. 

3.7 sen/share Assuming a net margin of 10%, this project translates to 3.7 sen/share for the company. 

Earnings visibility Overall, Kimlun has an outstanding construction order book of ~RM1.4bn and manufacturing orders of ~RM357m. This translates to 2.4x FY11’s construction revenue and 6.9x manufacturing revenue.

Risks 

• Execution risk;   
• Regulatory and political risk (both local and abroad);   
• Rising raw material prices; and   
• Unexpected downturn in the construction and property cycle.

Forecasts 

Unchanged as the contract win is already part of our RM700m order book replenishment assumption for FY13.

Rating

BUY

Positives: (1) Bigger than expected contract wins. (2) Recovery in earnings margin. (3) Contribution from Cyberjaya property development. (4) Faster than expected implementation of IBS-related projects. 

Negatives: (1) Sharp slowdown in the property sector which may affect existing property-related project. (2) Longer than expected gestation period of new manufacturing facilities.

Valuation 

Maintain TP of RM1.98 based on unchanged 10x average FY12-13 earnings.

Source: Hong Leong Investment Bank Research - 18 Jan 2013