Kimlun leverages on IBS

  • Property
  • Saturday, 12 Oct 2013

Kimlun Corp Bhd has leveraged on its expertise in industrialised building systems (IBS) to venture into property development and construction and this strategy has paid off.

The Johor-based company, which started out in the engineering and construction services and concrete products manufacturing, has secured RM1bil of new construction jobs year-to-date, mainly in the booming Iskandar Malaysia.

Kimlun has an order book of RM1.7bil as at June 30, 2013, of which RM1.3bil is from construction and the remaining RM400mil from manufacturing contracts.

In an e-mail interview with StarBizWeek, its chief executive officer Sim Tian Liang says 85% of the new projects are for the private sector property development in Iskandar Malaysia. The remainder is related to private sector property development in Selangor.

He adds that the profit margins for these projects range from 6% to 12%.

Kimlun CEO Sim Tian Liang
Sim: ‘Iskandar’s accelerated pace of development has a positive impact on Kimlun.’

Based on its outstanding tenders with its regular customers, he is confident the group can secure RM50mil to RM100mil construction projects the remainder of this year.

He adds Kimlun’s revenue had grown at average compounded annual rate of about 20% in the past six years, mainly due to the vibrant development activities in Iskandar. The catalysts are the various types of construction services Iskandar and as the group expands to the Klang Valley.

“We emphasised on human capital and incurred sizeable capital expenditure to increase our capacity and ability. These have enabled us to increase our range of concrete products range, undertake construction projects, which are more complex and larger in size.

MRT projects

“With the extensive construction experience, the group ventured into property development,” Sim adds.

Ongoing projects include a service apartment project in Johor Baru for IOI Properties Group valued at RM296.40mil and the service apartments and offices in Puteri Harbour for UEM Sunrise Bhd.

Kimlun is also involved in the mass rapid transit (MRT) projects in the Klang Valley and Singapore.

Of the eight local research houses covering Kimlun, three have a Buy call and one at Overweight.

AmResearch described the company as a proxy to the surge of construction jobs in Iskandar and MRT jobs in the Klang Valley and Singapore. It forecasts Kimlun’s earnings to rise from RM44.10mil in 2013 to RM78.90mil in 2014 and RM88.10mil in 2015.

RHB Research says Kimlun is a “must-own” stock along the value chain of the Klang Valley MRT project, given its involvement in the production of segmental box girders and tunnel lining segments.

Kimlun has a RM223.18mil contract to supply segmental box girders and a RM48.49mil deal to supply tunnel lining segments for the Klang Valley MRT.

In Singapore, it has contracts to supply the tunnel linings to the Singapore MRT downtown line and electrical cable tunnels.

The following is an extract of the interview:

SBW: How has Iskandar impacted Kimlun?

Sim: Iskandar’s accelerated pace of development has a positive impact on Kimlun as it reached its tipping point after the completion of key catalytic projects such as Lego Land, Puteri Harbour indoor theme park, Educity and expressways which improved its connectivity.

The warmer relationship with Singapore and more projects in the pipeline have further encouraged investors to undertake business ventures and invest in property in Iskandar. These have created strong demand for properties of all types be it be industrial, residential or commercial in this region.

Kimlun has benefited by offering to construct infrastructure as well as buildings by using conventional or IBS construction methods. There are many high-rise projects being launched or in the pipeline.

High-rise property can generally use higher percentage of IBS components which the group has the end-to-end experience covering design, fabrication on and off site and finally installation of the components produced on site to form part of the infrastructure structure or building.

The ability to provide one-stop services supported by proper equipped pre-cast concrete component manufacturing plant, as well as being one of the earlier adopters of the IBS construction method with a proven track record, we believe that we have some competitive advantage in bidding for projects in Iskandar.

Are there plans to undertake your own property projects?

Yes. We started our property development venture with the launching of our first SoHo offices development, the Hyve in Cyberjaya early this year.

We also acquired a 99-year lease over two contiguous parcels of freehold land measuring 5.31 acres in Medini North of Medini Iskandar. We plan to develop SoHo and retail properties.

Could you elaborate on plans to secure a further RM50mil to RM100mil worth of jobs by year-end?

Based on our outstanding tenders to our frequent customers, we are confident to secure at least RM50mil-RM100mil of construction projects in relation to private sector development projects in Iskandar.

How has Kimlun fared in Singapore with the tunnel cladding projects? For the supply of concrete products, we understand Singapore accounts for 35% while the bulk of it is for Malaysia.

We have been one of the few suppliers of tunnel lining segments to Singapore MRT projects as well as Singapore Power’s underground cable tunnel project. Our success rate in bidding for the supply order of the components is about 50%.

What are the other projects which Kimlun is bidding for in Singapore where it can leverage on its expertise in the supply of precast concrete?

Our construction arm has not bid for any construction project in Singapore as there are still ample of construction opportunities in Malaysia, in particular Iskandar. In addition, the group just ventured into property development which requires the services of the construction arm.

Could you elaborate on the RM55mil plant in Johor Baru to manufacture tunnel lining segments, concrete sleepers and IBS parts? What is its capacity and product volume?

The RM55mil was incurred progressively since 2002 to acquire land, building of factory and purchase of plant and machinery mainly for the production of TLS, jacking pipe, IBS parts, concrete sleepers as well as some other concrete products which are used in infrastructure projects.

The capacity of the plant is within the range of 230,000 to 250,000 metric ton per annum base on the production floor and storage yard in place, of which approximately 60% to 70% is used for the production of TLS, 10% to 15% each for the production of jacking pipes and IBS components respectively.

Kimlun is investing RM69mil in its Senawang plant to build tunnel lining segments, segmental box girders and IBS. What is its capacity and product volume?

The capacity of the plant is within the range of 500,000 to 600,000 tonnes per annum base on the production floor and storage yard in place.

The current utilisation rate of this plant is about 50%, of which about one-third is for the production of TLS and the remaining is for SBG. The production of IBS has yet to start.

Are there plans to invest in other plants to increase the output to meet the needs of the Iskandar and Klang Valley MRT projects?

There is no immediate plan to further invest heavily in expanding our capacity. The Senawang plant built last year is generally sufficient to meet the needs of KVMRT projects. The demand from Iskandar would be primarily supported by our Johor plant, and by our Senawang plant should the need arise.

Does Kimlun plan to undertake a rights issue or share placement?

The group has expanded considerably in term of size of operations as well as capacity, and has ventured into property development in the recent years.

We will consider equity raising, should there be further large funding requirement for our operation and property development venture, and to keep our gearing ratio at a comfortable level.

What are the challenges ahead for Kimlun in the next few years, based on the current economic growth?

Our country is expected to experience a slower growth rate as the economy of other countries in the region slow down. I do not think there will be a crisis as our financial system is stable and resilient. Projects that benefit the people will have to be implemented, such as affordable housing, transportation, roads and highways, schools and hospitals.

Are there plans to expand beyond Malaysia and Singapore?

There is no concrete plan as this moment as our current focus is to tap on the opportunities arising from the active property development sector as well as the rollout of large public sector projects in both countries. However, the group is always open to explore any overseas business opportunities.

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