KIMLUN: Better Value at Lower Price

Kimlun has tumbled about 36% from RM2.00 in early May to RM1.27 yesterday. Is this stock worth investing?

Results Update

For QE30/6/2018 (2Q2018), Kimlun’s net profit dropped 22% q-o-q or 33% y-o-y to RM10 million while revenue was mixed - dropped 1% q-o-q but rose 12% y-o-y to RM218 million.

Revenue dropped 1.3% q-o-q but profit after tax dropped 22% or RM2.76 million due to sharp drop in Group’s gross profit of RM3.34 million or 12.2% due to lower gross profit margin achieved by the construction division due to projects mix with higher composition of lower margin projects. The impact of a declined construction gross profit margin was partly offset by the improvement in the M&T GP margin. The improvement in manufacturing & trading ('M&T') gross profit was mainly due to the better margin precast concrete products contributed a higher proportion of M&T sales during in 2Q2018. [Note: Kimlun's result for QE30/6/2018 was announced on August 29, 2018.]


Table: Kimlun's last 8 quarters' P&L accounts


Graph: Kimlun's last 22 quarters' revenue, profits & profit margins

Financial Position

Kimlun's financial position is deemed adequate with good liquidity position (current ratio was at 1.7 time) but gearing ratio was elevated at 1 time.

Current Year Prospects

This is taken from the Notes to the latest Financial Statements:

The Group has an estimated construction and manufacturing balance order book of approximately RM1.7 billion and RM0.4 billion respectively as at 30 June 2018, contributed by numerous construction contracts and supply contracts. The balance order book provides a good earnings visibility to the Group and is expected to keep the Group busy for the next 2 years. (Emphasis mine)

Valuation

Kimlun (closed at RM1.27 yesterday) is now trading at a PER of 6.8 times (based on last 4 quarters’ EPS of 18.8 sen). At this PER, Kimlun is deemed fairly attractive.

Technical Outlook

Kimlun has dropped very near to its long-term uptrend line support at RM1.20.


Chart: Kimlun's weekly chart as at Sep 6, 2018_4.00pm (Source: Malaysiastock.biz)

Conclusion

Despite a slightly weaker financial performance, Kimlun is a good stock for long-term investment based on clear earning visibility, reasonably healthy financial position and fair valuation.

Note:

I hereby confirm that I do not have any direct interest in the security or securities mentioned in this post. However, I could have an indirect interest in the security or securities mentioned as some of my clients may have an interest in the acquisition or disposal of the aforementioned security or securities. As investor, you should fully research any security before making an investment decision.