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Malaysia

PP 7767/09/2010(025354)

 
Mala y sia PP 7767/09/2010(025354)
 

RHB Research Institute Sdn Bhd

A member of the

New Listing

 

RHB Banking Group

Company No: 233327 -M

MARKET DATELINE

Kimlun Corp

 

25 June 2010

 

Offer Price :

 

RM0.97

 

Public Issue of 64m New Shares & Offer For Sale Of 11.3m

Fair Value :

RM1.24

Existing Shares

 
 
     
 

Net

EPS

Net

 

FYE

Turnover

Profit

EPS

Growth

PER

P/NTA

Gearing

ROE

GDY

Dec

(RMm)

(RMm)

(sen)

(%)

(x)

(x)

(x)

(%)

(%)

2009

435.4

31.5

13.8

42.0

9.0

1.85

-

20.5

-

2010f

459.0

32.9

14.4

4.4

8.6

1.61

-

21.4

3.5

2011f

495.0

35.6

15.5

8.2

8.0

1.41

-

20.2

3.8

2012f

510.0

36.1

15.8

1.4

7.9

1.25

-

17.9

3.8

Issued capital (m shares)

 

229.0

Major shareholder (%)

 

Market capitalisation (RMm)

248.0

Pang Tin @ Pang Yon Tin

 

40.4

Main Market Listing /Non-Trustee Stock/Syariah Approved Stock By The SC Valuations based on estimated fair value of RM1.24/share

Kimlun Corp Bhd (Kimlun) is primarily engaged

in:

(1)

 

LISTING DETAILS

 
 
 

Construction (largely building jobs and minor infrastructure jobs

Listing Sought

Main Market of Bursa Malaysia

 

such as roads and flyovers); and (2) Manufacturing of pre-cast

Listing Date

29 June 2010

concrete products such as tunnel lining segments. For FY12/09,

Sector

Construction

construction and manufacturing contributed 78.6% and 21.4% to

Tax Resident

Malaysia

total gross profit respectively. In terms of geographical

Public Issue

1)

11.5m shares to the

 

breakdown, in FY12/09, Kimlun derived 91% of its revenues from

 

2)

Malaysian public 1.5m shares to

Malaysia with the balance 9% from Singapore.

employees and business associates

Since FY12/07, the construction division has completed RM1.06bn worth of projects (see Table 1). At present, its outstanding

3) 33.1m shares to selected investors via private

construction orderbook stands at RM650m (see Table 2). Kimlun is bidding for about RM900m worth of new construction jobs at present.

placement 4) 18.0m to Bumiputera investors approved by MITI via private placement

For the manufacturing division, cumulatively over the last three

 

Offer For Sale Of

1)

0.4m shares to eligible

2)

3)

years, it managed to clock up RM168m worth of sales (see Table 3), including orders for tunnel lining segments from contractors of

 

directors of the group 5.5m to selected

the Singapore MRT Circle Lines project worth S$14.4m (RM33.6). At present, its order backlog stands at RM97.1m (see Table 4). Kimlun is bidding for about RM75m worth of new orders for this division at present.

investors via private placement 5.5m to Bumiputera investors approved by MITI via private placement

 

MAJOR SUBSIDIARIES

Kimlun Sdn Bhd

100%

SPC Industries Sdn Bhd

100%

i-Buildtech Solutions Pte Ltd

100%

MANAGEMENT FORECAST

 
 

FY12/10

 

Net Earnings (RMm)

na

Net EPS (sen)

na

Net DPS (sen)

na

We are Neutral on the construction sector. On one hand, we foresee improved investors risk appetite for construction stocks following: (1) The massive underperformance of the sector vis-à- vis the market in 4Q2009 and 1H2010; and (2) A better sector news flow and new expectations on the heels of the recent announcement of the 10 th Malaysia Plan (10 MP). On the other hand, certain negative elements remain such as: (1) The still slow pace of the roll-out of public projects, a highly competitive market and declining dominance of established players in large-scale projects locally; and (2) The not-so-rosy outlook and increased operating risks in key overseas markets (following the Dubai credit crisis, Dong’s devaluation and rising arbitration cases).

Please read important disclosures at the end of this report.

Joshua Ng (603) 92802641 joshuang@rhb.com.my

24 June 2010 Table 1: Completed Construction Pr ojects Over The Last Three Years Project Client

24 June 2010

Table 1: Completed Construction Projects Over The Last Three Years

Project

Client

Value

(RMm)

Construction of shopping complex in Ulu Langat, Selangor

Construction of shopping complex on part of Section 11, Kota Damansara

Design and build, testing and commissioning of a shopping complex with infrastructure works in Mukim Pulai, JB

Construction of 438 units of double storey houses in Sierra Perdana, Mukim Pulai JB

Construction of 398 units of apartments and townhouses in Bandar Seri Alam, Mukim Plentong, JB

Construction of 70 units of semi-detached houses in Shah Alam, Selangor

Construction of 371 units of link houses at Sierra Perdana, JB

Construction of 260 units of link houses at Bandar Seri Alam, JB Construction of 154 units of terrace houses in Mukim Pulai, JB

Construction of 3 elevated U-turn bridges and 4 elevated pedestrian bridges for the road upgrading of the JB-Pasir Gudang Highway

Others (below RM20m in value)

Bayu Melati Sdn Bhd

Bayu Melati Sdn Bhd

WCT Construction Sdn Bhd

Venice View Development Sdn Bhd (Mah Sing)

Seri Alam Properties Sdn Bhd

Esquire Corner Sdn Bhd

Venice View Development Sdn Bhd (Mah Sing) Seri Alam Properties Sdn Bhd Mutiara Rini Sdn Bhd

Setia Precast Sdn Bhd Various

39.3

37.5

35.0

33.1

22.6

22.4

22.4

25.6

23.9

71.0

727.3

Total

1,060

Source: Company

Table 2: Outstanding Construction Orderbook

Project

Client

Value

(RMm)

1,500 units of apartment in Bandar Nusajaya, JB

2,720 units of low cost apartments, 51 units of commercial properties and other ancillary buildings in Mukim Pulai, JB

172 units of apartments and other ancillary buildings in Bandar Nusajaya, JB

Construction of elevated interchanges along JB Inner Ring Road

Others

Iskandar Regional Development Authority

Tebrau Bay Constructions Sdn Bhd

UEM Land Bhd

SJIC Bina Sdn Bhd

97.4

117.6

37.2

72.1

325.7

Total

650.0

Source: Company

Table 3: Concluded Sales Of The Manufacturing Division Over The Last Three Years

Project

Client

Value (RMm)

Pre-cast concrete tunnel lining segments for Singapore MRT Circle Line Pre-cast components for an industrial building in Singapore

Pre-cast concrete jacking pipes for Deep Tunnel Sewerage Scheme Seleter Link sewer Contract 1

Pre-cast concrete cladding pipes for the laying of submarine pipes from Loji to Labuan

Others (below RM3m in value)

WH-STEC-AM-JV and Construction Technology Pte Ltd

CES-Precast Pte Ltd

Tiong Seng Contractors Pte Ltd

JAKS Sdn Bhd

Various

33.5

19.4

8.8

11.0

95.7

Total

168.4

Source: Company

KIMLUN 2 CORP
KIMLUN
2
CORP

A comprehensive range of market research reports by award-winning economists and analysts are exclusively available for download from www.rhbinvest.com

24 June 2010 Table 4: The Manufacturing Division’s Order Backlog Project Client Value (RMm) Pre-concrete tunnel

24 June 2010

Table 4: The Manufacturing Division’s Order Backlog

Project

Client

Value

 

(RMm)

Pre-concrete tunnel lining segments for Singapore MRT Downtown Line

Shimizu, Shanghai Tunnel Eng Co Ltd, SK Engineering & Construction, McConnel Dowell SEA and ALPINE Bau GmbH

85.5

Pre-cast concrete building components to Oasis @ Elias Condo

CES-Precast Pte Ltd

5.3

Pre-stress planks to Punggol Regalia

CES-Precast Pte Ltd

6.3

Total

97.1

Source: Company

We believe the growth prospects of Kimlun’s construction division are slightly better than the industry as its key focus is on building jobs for private property developers locally. Also, Kimlun holds the competitive edge via its expertise in Industrialised Building Systems (IBS), where basically pre-cast building components are brought in and assembled into structures on the site, like the LEGO blocks game. While this construction method is relatively new in Malaysia, it has been widely used in developed countries such as the US and those in Europe. The key advantages of IBS are shorter construction time (and hence lower risk on cost escalation) and reduced labour input. In terms of speediness in completion, for instance, Kimlun expects to complete 1,500 units of apartments in Nusajaya in 15 months vis-à-vis 24 months via the conventional construction method.

The growth potential of Kimlun’s manufacturing division is strong, underpinned largely by the order backlog of S$36.7m (RM85.5m) for tunnel lining segments from contractors of the Singapore MRT Downtown Line project. The prospects for more orders for tunnel lining segments from Singapore are good as the MRT expansion plan in Singapore is expected to last until 2020 with the addition of two new lines, i.e. the Downtown Line and the Eastern Region Line.

At the helm of the company is CEO and executive director Mr Sim Tian Liang who has had more than 30 years of experience in construction project management. He is an engineer by profession and also the Deputy President of Johor Master Builders Association.

At the offer price of RM0.97, the IPO will raise RM62.1m gross proceeds (see Table 5 for IPO proceeds utilisation). Post-IPO, the company is estimated to be in a net cash of RM70.7m.

We

project

Kimlun’s net profits to

grow

by 1-8%

per

annum in

FY12/10-12,

driven largely by the

expansion at its manufacturing division. Indicative fair value is RM1.24 based on 8x FY12/11 EPS of 15.5 sen, at a discount to our benchmark 1-year forward target PER for the construction sector of 10-14x to reflect Kimlun’s relatively small market capitalisation.

Table 5: Utilisation Of Gross IPO Proceeds

 

RM m

Construction of factories & purchase of PPE

35.9

Purchase of industrial land

5.2

Working capital

17.0

Listing expenses

4.0

Total

62.1

KIMLUN 3 CORP
KIMLUN
3
CORP

A comprehensive range of market research reports by award-winning economists and analysts are exclusively available for download from www.rhbinvest.com

24 June 2010 Table 6 : Earnings And Forecasts FYE Dec 2007 2008 2009 2010f 2011f

24 June 2010

Table 6 : Earnings And Forecasts

FYE Dec

 

2007

2008

2009

2010f

2011f

2012f

Turnover

366.3

413.3

435.4

459.0

495.0

510.0

construction

318.7

350.8

390.6

410.0

430.0

450.0

manufacturing

49.4

68.3

50.7

55.0

70.0

65.0

intersegment

-1.9

-5.8

-6.0

-6.0

-5.0

-5.0

cost of sales

-318.9

-366.4

-374.3

-396.0

-429.0

-442.0

Gross Profit

47.4

46.8

61.1

63.0

66.0

68.0

construction

37.2

28.8

48.0

49.0

48.0

52.0

manufacturing

10.1

18.0

13.1

14.0

18.0

16.0

other operating income

1.2

1.1

1.4

1.2

1.3

1.2

selling and admin exp

-12.6

-15.9

-17.3

-17.0

-17.5

-18.0

EBIT

36.0

32.0

45.2

47.2

49.8

51.2

finance cost

-2.2

-2.8

-2.4

-2.3

-2.2

-2.1

pbt

33.8

29.2

42.8

44.9

47.6

49.1

taxation

-8.0

-7.0

-11.3

-12.0

-12.0

-13.0

pat

25.8

22.2

31.5

32.9

35.6

36.1

Chg (%)

-

-14.0

42.0

4.4

8.2

1.4

EPS (sen)

11.3

9.7

13.8

14.4

15.5

15.8

Chg (%)

-

-14.0

42.0

4.4

8.2

1.4

PER (x)

11.0

12.8

9.0

8.6

8.0

7.9

Gross dividend per share (sen)

-

-

-

4.3

4.7

4.7

Gross dividend yield (%)

-

-

-

3.5

3.8

3.8

Valuations based on estimated fair value of RM1.24/share

KIMLUN 4 CORP
KIMLUN
4
CORP

A comprehensive range of market research reports by award-winning economists and analysts are exclusively available for download from www.rhbinvest.com

IMPORTANT DISCLOSURES 24 June 2010 This report has been prepared by RHB Research Institute Sdn Bhd

IMPORTANT DISCLOSURES

24 June 2010

This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI and RHB Investment Bank (previously known as RHB Sakura Merchant Bankers). It is for distribution only under such circumstances as may be permitted by applicable law. The opinions and information contained herein are based on generally available data believed to be reliable and are subject to change without notice, and may differ or be contrary to opinions expressed by other business units within the RHB Group as a result of using different assumptions and criteria. This report is not to be construed as an offer, invitation or solicitation to buy or sell the securities covered herein. RHBRI does not warrant the accuracy of anything stated herein in any manner whatsoever and no reliance upon such statement by anyone shall give rise to any claim whatsoever against RHBRI. RHBRI and/or its associated persons may from time to time have an interest in the securities mentioned by this report.

This report does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. The securities discussed in this report may not be suitable for all investors. RHBRI recommends that investors independently evaluate particular investments and strategies, and encourages investors to seek the advice of a financial adviser. The appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives. Neither RHBRI, RHB Group nor any of its affiliates, employees or agents accepts any liability for any loss or damage arising out of the use of all or any part of this report.

RHBRI and the Connected Persons (the “RHB Group”) are engaged in securities trading, securities brokerage, banking and financing activities as well as providing investment banking and financial advisory services. In the ordinary course of its trading, brokerage, banking and financing activities, any member of the RHB Group may at any time hold positions, and may trade or otherwise effect transactions, for its own account or the accounts of customers, in debt or equity securities or loans of any company that may be involved in this transaction.

“Connected Persons” means any holding company of RHBRI, the subsidiaries and subsidiary undertaking of such a holding company and the respective directors, officers, employees and agents of each of them. Investors should assume that the “Connected Persons” are seeking or will seek investment banking or other services from the companies in which the securities have been discussed/covered by RHBRI in this report or in RHBRI’s previous reports.

This report has been prepared by the research personnel of RHBRI. Facts and views presented in this report have not been reviewed by, and may not reflect information known to, professionals in other business areas of the “Connected Persons,” including investment banking personnel.

The research analysts, economists or research associates principally responsible for the preparation of this research report have received compensation based upon various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues.

The recommendation framework for stocks and sectors are as follows : -

Stock Ratings

Outperform = The stock return is expected to exceed the FBM KLCI benchmark by greater than five percentage points over the next 6-12 months.

Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or more over a period of three months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing to take on higher risks.

Market Perform = The stock return is expected to be in line with the FBM KLCI benchmark (+/- five percentage points) over the next 6-12 months.

Underperform = The stock return is expected to underperform the FBM KLCI benchmark by more than five percentage points over the next 6-12 months.

Industry/Sector Ratings

Overweight = Industry expected to outperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Neutral = Industry expected to perform in line with the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Underweight = Industry expected to underperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

RHBRI is a participant of the CMDF-Bursa Research Scheme and will receive compensation for the participation. Additional information on recommended securities, subject to the duties of confidentiality, will be made available upon request.

This report may not be reproduced or redistributed, in whole or in part, without the written permission of RHBRI and RHBRI accepts no liability whatsoever for the actions of third parties in this respect.

KIMLUN 5 CORP
KIMLUN
5
CORP

A comprehensive range of market research reports by award-winning economists and analysts are exclusively available for download from www.rhbinvest.com

24 June 2010 RHB DEALING AND RESEARCH OFFICES MALAYSIA RHB Investment Bank Bhd Level 10, Tower

24 June 2010

RHB DEALING AND RESEARCH OFFICES

MALAYSIA

RHB Investment Bank Bhd

Level 10, Tower One, RHB Centre, Jalan Tun Razak

50400

Kuala Lumpur

P.O. Box 12699

 

50786

Kuala Lumpur, Malaysia

Tel (General)

:

(603) 9285 2233

Dealing Office

Tel (Dealing)

:

(603) 9285 2288

Fax (Dealing)

:

(603) 9284 7467

RHB Research Institute Sdn Bhd

Level 10, Tower One, RHB Centre, Jalan Tun Razak

50400

Kuala Lumpur

P.O. Box 12699

 

50786

Kuala Lumpur, Malaysia

Tel (Research) : (603) 9280 2160

Fax (Research) :

(603) 9284 8693

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24 June 2010 RHB DEALING AND RESEARCH OFFICES MALAYSIA RHB Investment Bank Bhd Level 10, Tower

Lim Chee Sing

Director

RHBRI is a participant of the CMDF-Bursa Research Scheme and will receive compensation for the participation. Additional information on recommended securities, subject to the duties of confidentiality, will be made available upon request.

This report may not be reproduced or redistributed, in whole or in part, without the written permission of RHBRI and RHBRI accepts no liability whatsoever for the actions of third parties in this respect.

24 June 2010 RHB DEALING AND RESEARCH OFFICES MALAYSIA RHB Investment Bank Bhd Level 10, Tower