Kimlun Corporation - Weaker sequential earnings due to high start-up costs BUY

- Kimlun Corporation (Kimlun) posted weaker earnings QoQ  (-20%) to RM11.7mil in 3QFY12, bringing its cumulative 9-month net profit to RM37.2mil. This can be explained by high start-up costs for its new pre-cast component plant in Negeri Sembilan.

- Nonetheless, this came broadly in-line with our and street’s estimates, covering 78%-79% of FY12F forecast. 

- No dividend was declared for the quarter.

- However, on a YoY basis, earnings grew by 20% despite a solid growth of 44% in revenue. Weaker margins at the construction side (8.8% versus 11.2% last year) contributed to this, where lower margin jobs dominated the works during the period. 

- Going forward, earnings would be supported by strong unbilled sales of RM1.7bil (2.5x FY11 revenue) as at end-September 2012. 

- Kimlun has already bagged new contracts close to RM800mil, which is a record for the company. While this is already above our order book renewal assumption of RM700mil, we are keeping our estimates unchanged.

- The bulk of the contracts would likely be booked in FY13F and this should see strong growth in earnings – at an estimated 20% YoY growth.

- While the newsflow on KV MRT packages have peaked, Kimlun can still look forward to more jobs in Singapore. The group is one of the frontrunners to supply TLSS to Singapore’s underground cable tunnel project, which we gather is worth S$100mil. 

- We gather that the contracts will be awarded by the end of the year, albeit in small packages. Past records indicate Kimlun had won 70% of available tunnel lining packages in Singapore.

- We reaffirm our BUY rating on Kimlun Corporation (Kimlun) with our fair value kept at RM2.20/share.

Source: AmeSecurities