RHB Research upgrades Kimlun to Buy, TP RM1.36
KUALA LUMPUR: RHB Research has tactically upgrade construction company Kimlun to Buy from Neutral, at a revised target price of RM1.36 from RM1.52, offering 18% upside plus 5% FY19F yield.
It said on Friday Kimlun’s share price has fallen 45% year-to-date (YTD), which it believes is unjustified, with jobs still available in Johor and Singapore, albeit at a slower rate.
“This is seen in Kimlun securing RM442.6mil worth of new construction and manufacturing jobs YTD. Looking ahead, rail projects in the state of Johor, such as the RM8bil to RM9bil Gemas-JB Double Tracking (GJDT) and the RM4bil JB-Singapore Rapid Transit System (RTS) could provide opportunities for Kimlun to participate as either a subcontractor or supplier of precast components.
“At present, we have not factored any potential earnings contribution from rail projects in our model, and a successful bid would prompt us to raise our FY19F-20F earnings, which presently imply flattish growth.
“In addition, valuations are undemanding, with the stock trading at FY19F P/E of seven times, below our small cap target P/E of nine times,” it said.
RHB Research said valuations are undemanding, with the stock trading at seven times FY19F earnings.
As of September 2018, Kimlun has RM1.8bil outstanding construction orders and RM400mil precast manufacturing orders,” it said.
RHB Research said Kimlun reported 3Q18 earnings of RM16mil, an increase of 42% QoQ and 11% YoY. This contributed toward 9M18 earnings of RM38m (-14% YoY), below its and consensus’ estimates at 69% and 66% of respective forecasts.
Kimlun’s precast manufacturing division saw a 17% YoY growth in 9M18 EBIT, arising from higher deliveries for the Mass Rail Transit 2 (MRT2) project that is in full swing and higher sales volume of industrial building system (IBS) components.
In contrast, construction EBIT fell 14% YoY due to margin compression from unfavourable project mix.
“YTD, Kimlun has secured RM362mil worth of new construction jobs and RM81mil in precast manufacturing orders for projects in Johor and Singapore. As of September 2018, Kimlun has RM1.8bil outstanding construction orders and RM400mil precast manufacturing orders.
“We reduce FY18F-20F earnings by 7%-12%, assuming lower construction margins. Our target price is cut to MYR1.36 as we roll forward our valuations to FY19F and reduce our target P/E to eight times, in line with Kimlun’s 10-year mean. However, we upgrade Kimlun to Buy,” it said.
It said on Friday Kimlun’s share price has fallen 45% year-to-date (YTD), which it believes is unjustified, with jobs still available in Johor and Singapore, albeit at a slower rate.
“This is seen in Kimlun securing RM442.6mil worth of new construction and manufacturing jobs YTD. Looking ahead, rail projects in the state of Johor, such as the RM8bil to RM9bil Gemas-JB Double Tracking (GJDT) and the RM4bil JB-Singapore Rapid Transit System (RTS) could provide opportunities for Kimlun to participate as either a subcontractor or supplier of precast components.
“At present, we have not factored any potential earnings contribution from rail projects in our model, and a successful bid would prompt us to raise our FY19F-20F earnings, which presently imply flattish growth.
“In addition, valuations are undemanding, with the stock trading at FY19F P/E of seven times, below our small cap target P/E of nine times,” it said.
RHB Research said valuations are undemanding, with the stock trading at seven times FY19F earnings.
As of September 2018, Kimlun has RM1.8bil outstanding construction orders and RM400mil precast manufacturing orders,” it said.
RHB Research said Kimlun reported 3Q18 earnings of RM16mil, an increase of 42% QoQ and 11% YoY. This contributed toward 9M18 earnings of RM38m (-14% YoY), below its and consensus’ estimates at 69% and 66% of respective forecasts.
Kimlun’s precast manufacturing division saw a 17% YoY growth in 9M18 EBIT, arising from higher deliveries for the Mass Rail Transit 2 (MRT2) project that is in full swing and higher sales volume of industrial building system (IBS) components.
In contrast, construction EBIT fell 14% YoY due to margin compression from unfavourable project mix.
“YTD, Kimlun has secured RM362mil worth of new construction jobs and RM81mil in precast manufacturing orders for projects in Johor and Singapore. As of September 2018, Kimlun has RM1.8bil outstanding construction orders and RM400mil precast manufacturing orders.
“We reduce FY18F-20F earnings by 7%-12%, assuming lower construction margins. Our target price is cut to MYR1.36 as we roll forward our valuations to FY19F and reduce our target P/E to eight times, in line with Kimlun’s 10-year mean. However, we upgrade Kimlun to Buy,” it said.
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