Kimlun’s 1QFY17 profit dips on slower billings from construction, manufacturing

Kimlun Corp Bhd (May 31, RM2.29)

Maintain market perform with an unchanged target price of RM2.27: Kimlun Corp Bhd’s first quarter of financial year 2017 (1QFY17) core net profit (CNP) of RM14.2 million is within our and consensus expectations at 20%. We derive our CNP after reversing out unrealised foreign exchange gains of around RM1.2 million. No dividends were declared, as expected.

Kimlun’s 1QFY17 CNP was down 41% quarter-on-quarter on the back of a lower revenue (down 28%) from slower billings from construction (down 27%) and manufacturing (down 36%).

The slower construction billings were due to jobs secured in FY16 being in their early stages and yet to reach the advanced billings stage, while the weaker manufacturing revenue was due to completion of tunnel lining segments orders from Singapore in FY16 pending the supply of Klang Valley Mass Rapid Transit 2 (KVMRT2) segmental box girder packages, expected to pick up from second half of 2017 (2H17).

The group’s 1QFY17 CNP was down 30% year-on-year from weaker revenue on similar reasons stated above.

Year to date, Kimlun has secured RM105 million worth of contracts accounting for 10% of our RM1 billion construction replenishment target. We believe our replenishment target is achievable backed by affordable housing projects, given their pioneer status as an industrialised building system player which allows for speedier construction and less labour requirements.

The current outstanding construction order book stands at RM1.59 billion, providing visibility for the next two years. Meanwhile, we expect construction works from the Pan Borneo Highway, which makes up around 30% of their outstanding order book, to pick up at a quicker pace from 2H17.

Year to date, Kimlun has secured around RM90 million of manufacturing orders, making up 30% of our RM300 million targeted replenishment. Replenishment target is to be backed by potential Singapore manufacturing packages, that is the Deep Tunnel Sewerage System Phase 2, MRT Circle Line 6 and North South Corridor Expressway to be awarded later in the year.

The current outstanding manufacturing order book stands at RM330 million, providing visibility for around two years.

We make no changes to our FY17-FY18 earnings forecasts. Risks to our call include lower-than-expected margins from the Pan Borneo Highway and KVMRT2 manufacturing sales orders, lower-than-expected construction billings, and lower-than-expected replenishment rates. — Kenanga Research, May 31

This article first appeared in The Edge Financial Daily, on June 1, 2017.

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