AmInvestment upgrades Kimlun to 'buy' as value emerges after selldown

TheEdge Tue, Mar 24, 2020 10:36am - 4 years View Original


KUALA LUMPUR (March 24): AmInvestment Bank is upgrading its call on Kimlun Corp Bhd to a “buy”, from “underweight” previously, citing value emerging after the recent selldown on the stock.

However, the investment bank has lowered its fair value target to 78 sen after cutting its net profit forecasts for FY20 up to FY22 by 13%, 17% and 9% respectively.

“The earnings downgrade is largely to reflect lower annual construction job wins of RM450 million in FY20–FY21 (versus RM550 million we assumed previously), in line with the company’s latest guidance for RM400–RM500 million replenishment in construction jobs in FY20.

“So far in FY20, the company has secured new jobs worth about RM100 million, boosting its outstanding construction order book to RM1.3 billion (versus its annual construction churn rate of RM800 million to RM1 billion). Meanwhile, its precast concrete product division’s earnings should be sustained by an order backlog of about RM240 million (that should so keep it busy over the next 12 months), coupled with consistent order flow especially from infrastructure projects in Singapore,” AmInvestment said in a note today.

It added that the construction company is prioritising credit risk management and delivering its existing order backlogs, over growing its earnings.

AmInvestment said with the continued subdued outlook for the local construction sector, the government has little room for fiscal manoeuvre and is unlikely to roll out new public infrastructure projects in a major way over the short term, such as the MRT3 and the KL–Singapore high-speed rail.

Similarly, it said prospects for a recovery in the property market look more bleak now with the global economy moving closer to a severe downturn amidst the Covid-19 pandemic.

“However, at only 5x forward earnings, we believe the market has over-reacted to the downside as far as Kimlun’s share price is concerned,” it said.

The stock is currently trading 0.5 sen or 0.97% higher at 52 sen. The counter has shed some 52% over the past month.

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