Kimlun: Poised for Next Upleg

Background

Kimlun Corporation Bhd ('KimLun') is involved in infrastructure and building construction, project management, industrial building systems (IBS) and manufacture of pre-cast concrete products (such as tunnel lining segments).


Diagram 1: Tunnel Lining Segment under production


Diagram 2: Tunnel Lining Segment

Recent Financial Results

For QE30/9/2015, Kimlun's net profit rose 26% q-o-q or 118% y-o-y to RM19.6 million while revenue dropped 6.7% q-o-q or 18.2% y-o-y to RM241 million.

The Group dropped q-o-q mainly due to lower revenue being achieved by the construction and manufacturing and trading divisions. Construction revenue dropped due to the completion of some of the older projects, while new projects secured had yet to reach the stage of active execution during the current quarter. Manufacturing revenue dropped due to lower sales of tunnel lining segments (‘TLS’), as the supply to one of the TLS sales orders was nearing the tail end.

Despite of lower revenue achieved, the Group recorded a higher gross profit due to better gross profit margin of the construction and manufacturing divisions. Selling and administrative expenses were lower due to the increase in foreign exchange gains by RM1.65 million. Share of profit of a joint venture was higher due to relatively higher construction progress, during the current quarter. As a result of the increase in gross profit and share of profit of a joint venture, and the decline in selling and administrative expenses, profit before and after tax rose q-o-q.

Table: Kimlun's last 11 quarters' P&L accounts


Chart 1: Kimlun's last 11 quarters' revenue, profits & profit margins


Financial Position

Kimlun's financial position as at 30/9/2015 is deemed mixed, with adequate liquidity as reflected by a current ratio of 1.69x but elevated leverage as shown by a gearing ratio of 1.16x. The high current ratio & gearing ratio are the result of high trade receivables with collection period of 160 days. This high term given out could be a practice in this industry.

Valuation

Kimlun (closed at RM1.43 this morning) is now trading at a PER of 7.5X (based on last 4 quarters' EPS of 19 sen). At this PER, Kimlun is deemed fairly valued. And, despite the financial burden of carrying a heavy receivable, Kimlun still paid a decent dividend of 3.8 sen last year- translating into a DY of 2.7%.

Technical Outlook

Kimlun has broken above its downtrend line, RR at RM1.25 in early September. Its rally after breakout was capped by the horizontal line RM1.40. In the past few days, it has broken above this horizontal line. If this breakout can sustain, the stock may soon launch into its next upleg- similar to what we have seen in May 2013. The target of this developing rally could be its May 2013 high of RM2.00.


Chart 2: Kimlun's weekly chart as at Dec 8, 2015 (Source: ShareInvestor.com)

Conclusion

Based on good financial performance, fair valuation & mildly positive technical outlook, Kimlun could be a good stock for a trading BUY or even a medium-term investment.

Note:
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, Kimlun.