• Maintain BUY on Kimlun Corp (Kimlun) with an unchanged fair value (FV) of RM1.20/share, pegged to FY24F PE of 9x. This is in line with our benchmark for small-cap construction stocks. There is no FV adjustment for ESG based on our neutral 3-star ESG rating.

• Kimlun announced that it has been awarded with a contract to develop a service residence development in Johor Bahru. Details of the contract is as follows:
  
  ➢ Contract value RM150mil.
  ➢ A service residence apartment called Aliva Mount Austin.
  ➢ Awarded by Astaka Development Sdn. Bhd.
  ➢ Construction will start soon, target completion date 4Q 2026.

• We keep our earnings forecasts and target price unchanged as this job win was part of our orderbook replenishment targets.

• This supplements the company’s orderbook to RM2.4bil. Kimlun has secured RM2.4mil of job wins thus far this year (RM134mil Sunway Parkview and RM150mil Aliva Mount Austin). This is well underway to meet with management’s FY24F replenishment target of RM700mil, with more jobs waiting for approvals such as the Phase 2 of Sabah-Sarawak Link Road (SSLR), Pan-Borneo Highway, Johor-Singapore Rapid Transit System, road upgrading works in Johor and affordable housing projects.

• This is Kimlun’s second service apartment project in Johor with the first project currently under construction and is targeted to be ready in 2H2025. Kimlun has proven to be the best Johor Bahru-themed investment with its consistent job wins around the Johor development area.

• Risks are (i) weaker-than-expected recovery of job flows; (ii) eroding profit margins from rising energy and material costs; and (iii) shelving of mega projects.

• We believe Kimlun is undervalued, currently trading at a FY24F PE of 7.7x, a 15% discount to the average PE of 9x for small-cap construction stocks in Malaysia.

Source: AmInvest Research - 19 Apr 2024