Buy Fair Value RM1.37

Transcription

1 Company Report 28 June 2010 PP7084/11/2006 Strictly for internal circulation only Kimlun Corporation Bhd Next generation construction for Malaysia SJ Securities Sdn. Bhd. Buy Fair Value RM1.37 Stock Data Offer price (RM) 0.97 Listing Main Market Paid-up Cap (mil) 229 Market Cap (RM) Major shareholders Pang Pang Yong Tin 56% Pang Pang Choo Ing 13% Pang Khang Hau 8% Important dates Tentative listing date 29 th June 2010 Utilisation of proceeds Applications of proceeds RM ( 000) Construction of factories and purchase of plant and machinery 35.9 Purchase of Land 5.2 Working Capital 17.0 Listing Expenses 4.0 Total 62.8 Our reports are available for download on SJenie website as stated below. SJ Securities Sdn Bhd A Participating Organisation of Bursa Malaysia Securities Bhd Tel: Fax: Company Profile Kimlun is a one stop center for engineering and construction services specializing in both infrastructure and building construction. Kimlun is one of the few groups in Malaysia that has and Industrialised Building Systems (IBS) services capability. It is also supported by its concrete products division. The group is based in Johor but also focuses on Singapore and Klang Valley. Investment Highlights Earnings visibility. The group has a very large unbilled orderbook for both its construction and manufacturing segment. As at 31 st December 2009, the group has an unbilled orderbook of approximately RM550mil. The manufacturing segment had an unbilled orderbook of RM48mil. The group has since secured and replenished more projects. Actively bidding. The group is actively bidding on approximately RM650mil worth of construction projects and RM175mil on manufacturing projects. The group has a moderate success rate for construction project but the bidding amount is rather large and sizable. The group has a very high success rate for the manufacturing segment and a sizable amount comes from Singapore. Edge of Industrialised Building Systems (IBS). Kimlun s IBS system is one of its key advantages and differentiator in the industry. IBS in construction has numerous advantages including reducing construction time substantially, improve site management, improves efficiency and reduces the high labour requirement in construction. Time and labour saving. Usage of IBS reduces construction time and labour resources substantially. The IBS system enables a mass manufacturing type approach on whole parts of a building such as an entire wall, a room or an entire pillar. Traditionally, walls may be built brick by brick while waiting for cement to dry. This is both labour intensive and time consuming. The time saving element is a key differentiator for building in highly congested areas such as the city center and urban areas. A testimony to its strength is its very high award rate on IBS project biddings in Malaysia.

2 Added value to developers. The quick turnaround time is a large draw to developers. The quick completion of the property will enable quicker turnover for the developer as well. By reducing the turnaround time, developers would also reduce the risk of rising construction costs. Moreover, developers that would like to lock as many sales as possible during a property bull cycle may also be attracted to the quicker turnaround time. The quick turnaround time may also be an option for developers which are behind schedule and would be facing Liquidated and Ascertained Damages (LAD) charges. Track record and experience. The group was established since 1977 while the management team has had over 20 years experience in the industry. The group has since sailed through the numerous downturns during the period. Moreover, during the troubled period of , the group was still performing and growing. Strong customer base. Most of the customers are long term customers with relationships of more than 5 years. The bulk of the business from Malaysia are property development companies while the majority of the customers in Singapore are main contractors. Some of the major customers include SP Setia, UEM Land, Melati Ehsan, WCT, Keck Seng Bhd, Mah Sing, Boustead group, Iskandar Regional Development Authority, Shimizu Corporation and CES Precast Pte Ltd. Strong portfolio. Kimlun has undertaken projects to supply pre-cast concrete tunnel lining segments for the MRT project in Singapore. The ability to undertake and win the award for the tender signifies Kimlun s strength and high precision in the industry. Kimlun has also undertaken jobs for the Genting Resort in Singapore and is currently undertaking a high profile job to construct 1500 units of apartments using IBS technology. Moreover, the large percentage of Kimlun s jobs originate from Singapore, which showcases their capabilities further. Apartments using IBS technology. Kimlun is undertaking to build 1500 units of apartments in Bandar Nusajaya in Johor using primarily IBS systems. The project would be the first housing project in Malaysia of a large scale to use primarily IBS system. The successful completion of the project would showcase the IBS technology as well as Kimlun s ability in the field. The housing project is being completed at rate much faster than conventional methods. Open to growth opportunities. Kimlun is open to the large growth opportunities in Singapore and Iskandar Malaysia. Should the Iskandar development really take off, Kimlun could be one of the key beneficiaries of such a development. Singapore could potentially expand further with the development of the two new integrated resorts. Moreover, orders for Kimlun are expected to be strong for the next several years as Singapore has planned to extend its MRT tunnel lines significantly. Projects are expected to last till 2018 and would provide for several billions worth of projects to contractors. Less risk. Kimlun is less exposed to risk of rising construction costs and labour issues. As highlighted, the shorter construction period reduces the risk of material cost fluctuating excessively as compared to a regular construction company that would take a longer time. Moreover, as Kimlun is not labour intensive, Kimlun is less exposed to risk of shortage of labours or changes of government policies on foreign labour. Support of concrete division. Kimlun is supported by its own supplier of its key raw materials. This enhances the group s cost efficiency as well as enables better management and consistency in supply of key raw materials. One-stop center. The group provides a one stop center from conceptual planning, designing and engineering on construction. The integration is a key attraction to groups which are looking for a one-stop solution as well as more coordinated and efficient operations. This is as 2

3 opposed to getting several contractors which may have problems coordinating and would require more management. Strong portfolio. The group had previously undertaken various projects. Over the past four years total projects revenue exceeded over a billion ringgit worth. Some of the key projects include a Jusco mall in Johor, Carrefour mall in Selangor, Perling Interchange in Johor anr various residential projects from reputable developers. Large cash position. The group has a net cash position of RM29.6mil as at 31 st Dec. The large cash position will help the group to take on projects as well as providing the group stability. Challenges IBS acceptance. Despite the system being highly efficient and time saving, it is still not widely accepted yet in Malaysia. Many developers and construction companies have very little knowhow on this more advance building system. Therefore there are some challenges, integrating with other construction companies and also bidding on some government jobs. However this system has been long accepted in more advance countries including Singapore. However the system is gradually gaining acceptance too in Malaysia and Kimlun has been building more inroads in the industry. The Malaysian government has stipulated that the content of IBS components in every new government project is to be increased to no less than 70% with effect from 31 October 2008, save for certain exceptions. In 2009, Kimlun secured its first building project based on the IBS concept from the Iskandar Regional Development Authority valued at close to RM154mil. Over the longer term, IBS systems may be more widespread and Kimlun would be at the forefront and one of the local market leaders in the industry. Rising raw material prices. Prices of raw materials have been on the rise again. Steel prices especially have risen sharply from the lows of last year. The construction industry may see some bumps from this. However, Kimlun is less affected by this fluctuations due to the shorter turnaround time. The environment may even be beneficial to Kimlun as this may be a competitive advantage against other construction companies. Corporate Structure Source: Company 3

4 Company profile Kimlun Sdn Bhd Kimlun Sdn Bhd was founded in Kimlun Sdn Bhd is involved in building construction of residential, commercial and industrial buildings. The company is also involved in infrastructure projects including earthwork, road, drain and sewerage reticulation. The company is also involved in heavy engineering projects such as flyovers, interchanges and high rise buildings. SPC Industries Sdn Bhd SPC Industries began operations in The company is involved in the manufacturing of concrete products for large scale infrastructure & building projects. The company offers both standard & customized concrete products. The products are approved by both Sirim & TuV SuD PSB (Singapore). I-Buildtech Solutions Pte Ltd I-Buildtech Solutions was incorporated in Singapore in I-Buildtech provides Industrialized Building Systems (IBS) solutions and trading of construction & building materials. Housing project using IBS system Source: SJ Securities 4

5 Pre-cast concrete wall panel Source: SJ Securities Pre-cast concrete columns Source: SJ Securities 5

6 Financial Highlight P&L F Units Revenue RM (mil) Gross Profit RM (mil) PBT RM (mil) Tax RM (mil) Net Profit RM (mil) EPS sen Growth % F Revenue % PBT % Net Profit/Loss % Margins % F Gross Margin % PBT Margin % Net Margin % Ratios PER x Utilization of Proceeds The expected utilization of proceeds is RM m. Out of the total, about RM 35.9 m will be used to construct factories and purchase of plant and machinery while another RM 5.2 m has been earmarked for purchase of land. Another RM 16.98m and RM 4m will be allocate for the working capital and listing expenditure. Utilisation of Proceeds Working Capital 27% Listing expenditure 6% Purchase of parcel industrial land 8% Source: Prospectus Construction of factories 59% 6

7 Peers Comparison Description Market Cap (mil) PER current PER forward Ahmad Zaki Bina Puri TRC Synergy Fajarbaru Average Recommendation. We recommend to subscribe to the shares with. Our fair value is RM1.37 based on a forward PER of 8.5x and FY10F s eps of 16.1 sen. We like Kimlun for being at the forefront of the IBS industry. Any key developments or higher acceptance of the construction industry in IBS would see reratings of the share. Disclaimer The information contained in this report is based on data obtained from sources believed to be reliable. However, the accuracy, adequacy, reliability or completeness of the information provided herein is not guaranteed and opinions are subject to change without notice. This report has been prepared for information purposes only and should not be construed as a solicitation for contracts. Any recommendation made does not take into account the specific investment objectives and any particular needs of investors. We accept no liability for any direct or indirect loss arising from the use of this document. We, our associates, directors or employees may have an interest in the securities and/or companies mentioned herein. Stock rating definitions Buy The stock is expected to perform positively. Expected return including both capital appreciation and dividends is expected to exceed 15% over 12 months. Hold The stock is expected to stay sidelined. Expected return including both capital appreciation and dividends is expected to range between negative 5% to positive 15% over 12 months. Sell The stock is expected to perform negatively. Expected return including both capital appreciation and dividends is expected to be negative 5% or lower over 12 months. Not Rated The stock is not under research coverage and the reports serves for purely informational purposes only. Trading Buy The stock is expected to be volatile while providing for near term positive trading opportunities. This is under the high risk category with near term catalysts. 7