STOCK IN FOCUS
Kimlun Corporation : On land-buying spree BUY
We cut our FY18-19F forecasts by 3% and 6%, and trim our FV by 3% to RM2.57 (from RM2.64) but maintain our BUY call. The earnings downgrade is to reflect higher interest expense arising from land acquisitions. Our FV is based on 12x revised FY18F FD EPS, which is in line with our 1-year forward target PE of 10–12x for small-cap construction stocks.
Kimlun has proposed a second acquisition of a bungalow project called Bukit Bayu in Seksyen U10, Bukit Raja, Shah Alam. Kimlun is acquiring from Melati Ehsan 30 bungalows and 47 bungalow lots sitting on 20.2 acres of land for RM68.4mil cash. Recall, in 2014, Kimlun first acquired 41 bungalow lots sitting on 8.9 acres of land for RM29.0mil cash. We understand that Kimlun will effectively take over the control of the project from Melati Ehsan with the second transaction.
We believe Kimlun’s latest move is both defensive and opportunistic in nature. It is defensive in the sense that Kimlun has to do something to prevent its 41 yet-to-be-launched bungalows from going down the same path as the initial phase, and Kimlun has decided to step into the driver’s seat for the entire project. It is opportunistic as we believe Kimlun has struck a good deal for itself in the second transaction.
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