With recent events that we have attended, one of them is KIMLUN. They are known for their Construction and Manufacturing expertise. Their business mainly consists of 3 sectors which is Construction & Engineering Services, Manufacturing and Property Development.
For the past year of 2018, construction has been slowing down and people are selling construction stocks like nobody’s business. We believe that some construction stocks are pretty much undervalued after the so called infamous “panic selling”. I think it’s high time that we investors should look for some rising stars that are trading at a significant discounted value. In these few months we will be covering a few construction stocks that will see significant profits after 2H 2019 and might consider them as a rising star in the construction industry.
Firstly with the recent event with KIMLUN, all eyes are now in KIMLUN as their stock in 2018 plunged a great amount from a high RM2.4 to a low RM1.0. Right now KIMLUN is sitting at around P/E of 6.62 and price of RM1.22 which from what I can see it is an undervalued stock judging from their NTA of 2.0. We shall further dissect the company’s earnings to further investigate why are they trading at such low valuations.
From the below we can still see that their 2018 revenue is still YoY growth of 2.7%, although their revenue might be up but we can see a decrease on their profit from 2017.
With their YoY financial performance (Income Statement) below we can see that their revenue starts to slow down since 2014 but from 2015 to 2017 it has been fluctuating and during the event they said since 2015 onwards they are more conservative as construction industry is slowing down. They also mentioned that they will be more conservative at bidding for projects and making sure that their cash remains healthy so that they have enough to support them during the upcoming recession.
From their Cash flow statement since 2011 they have been negative up until 2013 which they have turned around to positive operating cash flow 2014 onwards.
Operating cash flow remains positive and increasing YoY up until 2018 when they have 127.44mil negative cash flow. They mentioned that 2018 was the year that the government changed after the election and the new government held back paying money to most contractors for all mega projects and will only resume after 2H 2019, which by then KIMLUN will see continue to see positive operating cash flow. Most Construction companies are also having this issue about government holding back the payment which will increase trade receivables and if it drags for too long it might have an issue of increased payables to the bank.