KUALA LUMPUR, Jan 7 (Bernama) -- Bursa Malaysia’s benchmark index rebounded from earlier losses to close at its intraday high on Wednesday, gaining 0.27 per cent in late trading as buying interest returned to selected heavyweights. At 5 pm, the FTSE Bursa Malaysia KLCI (FBM KLCI) advanced 4.48 points to 1,676.83 from Tuesday’s close of 1,672.35. The benchmark index opened 0.88 of-a-point lower at 1,671.47 and subsequently hit a low of 1,665.94 during the mid-morning session before gaining momentum toward closing. On the broader market, losers led gainers by 565 to 512, while some 526 counters were unchanged, 1,046 untraded, and 10 suspended. Turnover improved to 2.73 billion units worth RM2.76 billion versus Tuesday’s 2.66 billion units worth RM2.76 billion. Dealers said that investors were cautious following geopolitical developments in Asia.
Maintain BUY with higher target price (TP) of RM2.66
Results
- Kimlun reported 3QFY16 results with revenue coming in at RM224.2m (-9% QoQ, -7% YoY) and earnings of RM16.5m (-32% QoQ, -16% YoY). Cumulative 9M earnings totalled RM57.7m, increasing +17% YoY.
Deviation
- 9M earnings made up 84% of our full year forecast (77% of consensus) which is above expectations.
- The stronger than expected results was attributed to the manufacturing division which enjoyed superior gross margins of 32% for the 9M period vs 24.8% last year. This was due to (i) stronger SGD against MYR and (ii) higher proportion of MRT deliveries last year which generally commands a lower margin.
Dividends
- None declared.
Highlights
- Orderbook remains healthy. Kimlun’s orderbook currently stands at RM2.1bn comprising RM1.8bn for construction and RM280m for manufacturing. Overall, this translates to a healthy cover ratio of 2x on FY15 revenue.
- Bags MRT2 TLS contract. Kimlun announced that it has been awarded a RM52.8m contract to supply tunnel lining segments (TLS) for the MRT2. The contract is expected to last until Sept 2019, slightly less than 3 years from now. This contract win is within our expectations as Kimlun was also one of the two TLS suppliers for the MRT1. Earlier in March, Kimlun also won a RM200m contract to supply segmental box girders (SBG) for the MRT2.
- Strong on job wins. YTD, Kimlun has managed to secure jobs in excess of RM1.3bn and is looking to add another RM200-300m for the remainder of the year. Looking ahead, potential job wins could stem from (i) the LRT3 where it has been prequalified for both the construction and precast roles, (ii) affordable housing under PR1MA and PP1AM in which it has already submitted some bids and (iii) the Central Spine Road. Kimlun has also successfully reduced its job flow dependency on Iskandar in view of the slowdown there..
Risks
- Slowdown in Iskandar could hamper job flow prospects.
Forecasts
- We raise FY16-18 earnings by 7%, 5% and 2% respectively as we impute higher margin assumptions for its manufacturing division.
Rating
- Maintain BUY, TP: RM2.66
- We like Kimlun as a prudently run construction outfit with commendable results delivery. Share price has fallen 8% from its peak this month, offering a good opportunity to accumulate.
Valuation
- Following the earnings upgrade, our TP is raised from RM2.44 to RM2.66 based on an unchanged 11x P/E multiple (mean) applied to FY17 earnings.
Source: Hong Leong Investment Bank Research - 30 November 2016
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