KIMLUN Corporation Bhd’s acquisition of a 49% stake in a Cheras development is regarded neutrally by AmInvestment Bank, due to the outlook for the local property market remaining subdued over the short to medium term.
This is despite the deal having a number of investment merits for Kimlun as a budding property developer and a seasoned contractor and manufacturer of precast concrete
products, according to AmInvest analyst Joshua Ng.
“The new project will diversify Kimlun’s landbank, currently concentrated largely in Johor and
Shah Alam. The new project will also create job orders for Kimlun’s construction and precast concrete product divisions,” said Ng.
The deal sees Kimlun subscribing to a 49% stake in Bayu Damai Sdn Bhd for RM40 mil in cash. Bayu Damai is the company finalising the acquisition of 17.6ha of freehold agriculture land in Cheras, Kuala Lumpur for RM95 mil.
This land has been earmarked for the development of high-rise residential towers and shop units with an estimated gross development value of RM2.2 bil. Bayu Damai has also secured the development order from Kuala Lumpur City Hall for the project, though it is only expected to start in 2022 with a timeline of 10 to 15 years.
“An important point to note is that Kimlun’s partner in the project (a private company owned by two individuals) is subscribing to its 51% in Bayu Damai for only RM9.9 mil cash. The more favourable equity subscription terms are to reflect the efforts it has put in to secure the development order, which is one of the most critical steps in any development project,” said Ng.
Ng also noted that the acquisition will increase Kimlun’s net debt and gearing of RM399 mil and 0.55x as of March 31 to RM439 mil and 0.6x, which “are still manageable”.
According to the analyst, Kimlun has also secured RM280 mil in new construction jobs so far for its 2020 financial year, largely building jobs for residential property projects. This brings Kimlun’s order book to RM1.4 bil, compared to its annual construction churn rate of between RM800 mil to RM1 bil.
“Our forecasts assume construction job wins of RM450 mil annually in FY20–22F, which represent a slight improvement over RM413 mil achieved during a relatively dry year in FY19,” said Ng.
Moving forward, the analyst believes that the government has very limited room for fiscal manoeuvres due to the elevated national debt, which means that it is unlikely to roll out new public infrastructure projects in a major way over the short term, such as the Mass Rapid Transit Line 3 project or the Kuala Lumpur-Singapore high speed rail project.
At the same time, Malaysia has also seen an outlook downgrade to negative from stable by S&P Global Ratings on June 26 to reflect a heightened risk of fiscal deterioration, weighed down by the economic impact of the Covid-19 pandemic, depressed oil prices and fiscal stimulus, according to Ng.
At 10.56am, Kimlun’s shares were last done at 75.5 sen, up a sen, with 389,500 shares traded. – Aug 11, 2020
