AmInvestment Research lowers Kimlun fair value to RM2.40

  • Business
  • Friday, 10 Mar 2017

Kimlun's cladding is used in the tunnels

KUALA LUMPUR: AmInvestment Research has lowered its fair value (FV) for Kimlun to RM2.40 from RM2.65 but it is still retaining its Buy call following the company’s cautious guidance for its earnings outlook during an analyst briefing.

The research house had on Friday cut its FY17F and FY18F forecasts by 18% and 3% respectively.

“Our FV is based on 11 times revised FY18F FD EPS, in line with our one-year forward target PE of 10 to 12 times for small-cap construction stocks,” it said.

Kimlun guided for weaker earnings in FY17F against FY16 (versus AmInvestment Research’s projection of +5.9% earnings growth in FY17F.

The key reasons being a high base in FY16 due to lumpy variation order claims recognised during 4Q, which had effectively inflated the overall construction margins and hence earnings. This is unlikely to recur in FY17F.

Another reason is that it takes time for Kimlun to ramp up production to fill the newly secured orders, i.e. those from MRT2 and Eastern Region Line (ERL) in Singapore.

“We trim our assumptions on construction margins during our forecast period, as well as manufacturing sales in FY17F.

“We now project Kimlun’s FD EPS to contract by 19.9% in FY17F, but subsequently bounce back by 19.8% in FY18F, driven largely by the recovery in manufacturing earnings as production and delivery of the MRT2 and ERL orders gather momentum,” it said.

AmInvestment Research said Kimlun is a good proxy to the booming local construction sector given its involvement in the MRT2 (supply of precast concrete segments), Pan Borneo Highway and the construction of affordable housing.

The research house  said Kimlun’s earnings visibility is strongly underpinned by construction and manufacturing order backlogs of RM1.67bil and RM260mil respectively, which will keep it busy for the next 12-18 months.

Kimlun’s earnings profile has improved tremendously as it no longer relies solely on residential building jobs, but has expanded to the construction of a hospital (Gleneagles Medini, RM105mil), a shopping mall (IGB's Southkey Megamall, RM38mil) and hostels (Sime Darby's Pagoh Education Hub, RM38mil), as well as infrastructure (a section of Pan Borneo Highway, RM1.46bil, via a 30%-owned JV with Zecon).

Similarly, its manufacturing unit has widened its product offering with the latest being rail sleepers and parapet walls.

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