KUALA LUMPUR: AmResearch maintained its Hold on Kimlun Corp Bhd
with an unchanged sum-of-parts based fair value of RM1.38 a share.
It said on Friday at RM1.38, this implied a price-to-earnings of 13 times FY15F core fully diluted earnings per share.
"Kimlun reported a 12% increase in core net profit to RM30mil for 1HFY15. Earnings exceeded expectations – making up 75% of our and 67% of consensus’ estimates. The better-than-expected performance can be attributed to better margins against a 9% fall in revenue," it said.
AmResearch pointed out the group’s net margins improved to 5% (vs. 4% previously) due to execution of projects with better margins, lower raw material price and fuel costs, as well as a lower tax rate.
Sequentially, 2Q earnings grew 10% on the back of a 20% decline in revenue. Net margin improved to 6% vs. 4.4% in 1Q.
Revenue for its construction arm fell 3% on-year during the six-month period. However, gross profit expanded by 9%, buoyed by lower costs and the execution of projects that yield better margins.
As for Kimlun’s manufacturing division, sales tapered off by sequentially as the bulk of segmental box girder (SBG) orders were completed in 1Q. Fortunately, tunnel lining segments (TLS) and jacking pipe (which yield better margins) orders drove the segment’s growth in 2Q.
“As at end-June, the group had an outstanding construction and manufacturing order books of RM1.2bil and RM220mil, respectively. This, together with unbilled property sales of RM65mil for the Hyve project (76% takeup rate), should support future earnings.
“Prospects will be supported by upcoming tenders for KVMRT2 and LRT2 jobs amid a macro slowdown in Johor. The strengthening SGD (vs. RM) is a boon for Kimlun as it seeks packages for MRT projects across the Causeway.
“YTD, the group has secured RM422mil worth of jobs – within our new order book assumption of RM600mil,” said AmResearch, adding that while margins surprised on the upside, it maintained its numbers for now as it seeks further clarity from management on sustainability.
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