Kimlun's cladding is used in the tunnels
Notably, pretax margin improved to 10% versus 6% a year earlier due mainly to the execution of better margin projects, lower material and fuel prices. Thus, Kimlun showcased a strong bottomline growth despite a 27% topline decline. Sequentially, core earnings grew 2% while revenue rose 1%. PBT margin was sustained at 10%.
“All in, gross margins for the construction and manufacturing divisions improved. Despite lower construction sales, margins had improved due to low material prices and execution of projects that utilised less specialist subcontractor works. The manufacturing division also benefited from the stronger Singapore dollar and sale of better margin products,” it said.
As at end-March, the group has an outstanding construction and manufacturing order books of RM1.5bil (1.7 times FY15 construction revenue) and RM340mil (1.7 times FY15 manufacturing sales), respectively.
“Year-to-date, the group has secured RM975mil worth new construction jobs – which surpassed our previous target of RM900mil. To this end, we have increased our target order book to RM1.15bil on the back of its tender book of RM4bil – raising our FY16F earnings by 2%.
“Prospective jobs include work packages for RAPID (infrastructure and support buildings), highways (SUKE, DASH), and landed properties in Johor.
“We have a replenishment target of RM250mil for its manufacturing division. Recall that it won the SBG supply contract worth RM200mil for KVMRT2 (KVMRT1: RM223mil) in March.
“We expect Kimlun to also supply TLS worth ~RM50mil for KVMRT2 (KVMRT1: RM48mil),” it said, adding that a news report stated Kimlun was also pre-qualified for LRT3 packages with awards expected in 2H16.
“Its Hyve project has an 82% take-up rate with unbilled sales of RM6.7mil. The project was completed in 1Q. Future earnings for the property division will come from its Pontian project (GDV: RM48mil).
“All in, we remain upbeat on Kimlun’s prospects; the stronger Singapore dollar will partly mitigate any rise in material prices. We have a PBT margin assumption of 9%. Maintain Buy,” said AmInvestment.
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