From its IPO price of 97 sen, the stock has gained 52.6% year-to-date to settle at RM1.48 last Friday. It achieved its highest ever at RM1.70 on Oct 12, and its lowest was 86.5 sen on July 2.
Kimlun’s shares are trading at forecast price-to-earnings ratio (PER) of about nine times, based on consensus estimates, and at two times book, with net assets per share of RM76 sen. Its PER valuation is well below that of the broader market and large construction peers, although there are also some small construction players like Protasco Bhd that trade at seven times PER.
Trading in Kimlun’s shares is relatively liquid with the company’s free float estimated at 48.8%. Kimlun’s major shareholders are executive chairman Pang Tin, who owns 40.86%, or 93.67 million shares.
The Johor Bahru-based company, which focuses on property, infrastructure and heavy engineering projects, made its debut on Bursa Malaysia’s Main Market on June 29.
It is not too surprising that Kimlun’s shares are seeing an uptrend, similar with most construction stocks as they ride on the 10th Malaysia Plan (10MP) story.
What is interesting is that Kimlun has higher gross profit margins than most other construction companies which are usually in the single-digit region, noted MIMB Investment Bank.
The research house in a recent note said Kimlun, which derives 90% of its revenue from construction, is able to record higher margins at 11% to 12%
“On pre-cast concrete division, the gross profit margin is even higher at 20%,” said MIMB.
The research firm has a buy call on the counter with a target price of RM1.73.
MIMB also estimates Kimlun to see a revenue growth of 18% per annum for FY2010 to FY2012.
It expects revenue to be more geographically dispersed as the group has initiated cooperation with foreign agents to export more pre-cast concretes products.
The house also expects Kimlun to benefit from its exposure in Educity@Iskandar — a recent effort by the government to woo foreign universities to set up campus in Iskandar.
Notably, Kimlun was recently awarded a RM70 million contract from Malaysian Resources Corp Bhd to build the Marlborough College East in Iskandar Malaysia. The Marlborough College East contract involves the construction of main building works and the targeted completion date is January 2012.
It was also awarded a RM65 million contract from S P Setia Bhd for two blocks of 25-storey serviced apartments in Bukit Indah, Nusajaya, Johor.
MIMB held the view that Kimlun has a good shot in getting a portion of the RM30 billion Klang Valley mass rapid transit (MRT) project.
It noted that Kimlun has an established track-record of supplying pre-cast tunnel lining segment to a number of Japanese and South Korean contractors involved in the Singapore MRT line extension.
Hwang DBS in its September note cited that Kimlun is actively bidding for over RM1 billion worth of contracts in Iskandar.
Separately, it said Kimlun is also bidding to supply some RM160 million worth of pre-cast concrete products to the Singapore MRT project.
Notably, Kimlun’s RM33.8 million net cash position and order book of some RM650 million would provide visibility for its earnings in the financial year ending Dec 31, 2011.
Its CEO and director Sim Tian Liang told The Edge Financial Daily that as a prudent construction outfit, it has set a realistic growth rate of approximately 15% to 20% for 2011.
“This takes into account the variety of projects available in 2011 and our willingness to only undertake selected projects that can meet our risk-and-return profile, after weighing our resources and capacity,” he said in an email reply.
Sim said the company is fairly delighted with its achievements in 2010. Kimlun registered a net profit of RM26.58 million for nine months ended Sept 30, compared with a full year net profit of RM31.53 million for FY09.
“We are fairly confident in surpassing last year’s profitability barring any unforeseen circumstances,” he added.
Sim said with the progressive implementation of the 10th Malaysia Plan, it anticipates that 2011 will provide tremendous opportunities for Kimlun to secure a higher quantum of new construction contracts from the marketplace.
Apart from the MRT project in the Klang Valley, Sim said Kimlun is also eyeing the development of the RM10 billion Malaysian Rubber Board’s land in Sungai Buloh and the construction of hospitals, and 50 additional 1Malaysia clinics as well as construction of 78,000 affordable houses. - by Isabelle Francis
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