KIMLUN has bagged a RM150m building job in Johor, boosting its YTD job wins to RM283.6m and outstanding order book to RM2.18b. We raise our FY24-25F earnings forecasts by 8% and 9%, respectively, lift our TP by 10% to RM0.98 (from RM0.89) but keep our MARKET PERFORM call.

KIMLUN has secured a building contract worth RM150m from Astaka Development Sdn Bhd for main building works for a serviced residence development known as Aliva Mount Austin, in Johor Bahru, Johor. The contract is due for completion in 4QCY26. We estimate the contract will fetch a gross profit margin of 7% to 9%.

We are positive on this second key contract win for KIMLUN in FY24, bringing its YTD contract wins to RM283.6m (vs. our FY24 job wins assumption of RM750m) and its current construction outstanding order book to RM2.18b, which is quite close to the peak of RM2.4b during the last up-cycle in FY17.

Outlook. We expect a brighter outlook for KIMLUN in FY24 backed by the roll-out of public infrastructure projects. We understand that KIMLUN is eyeing work packages and pre-cast concrete product orders from: (i) Pan Borneo phase 2, (ii) flood mitigation projects, (iii) Singapore Cross Island Line, (iv) semiconductor factories, and (v) MRT3.

Forecasts. We upgrade our FY24-25F net profit forecasts by 8% and 9%, respectively, as we raise our FY24-25F job win assumptions to RM800m and RM850m (from RM750m and RM800m, against the company’s target of RM900m per year).

Valuations. Correspondingly, we lift our TP by 10% to RM0.98 from RM0.89, based on unchanged 10x FY25F PER, at a discount to 18x we ascribed to mid-sized to large contractors given KIMLUN’s much smaller size. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 4).

Investment case. We like KIMLUN as: (i) it is a beneficiary of the roll- out of public infrastructure projects, (ii) it capitalises on the stable public infrastructure sector in Singapore with its precast concrete products manufactured in Johor, and (iii) its strong earnings visibility is backed by a construction outstanding order book of RM2.18b which will keep it busy for the next 2-3 years. However, its valuations are rich after the recent run-up in its share price. Maintain MARKET PERFORM.

Risks to our call include: (i) delays in the roll-out of public infrastructure projects, (ii) liquidated ascertained damages (LAD) arising from cost overrun and delays, (iii) rising cost of building materials; and (iv) labour shortages.

Source: Kenanga Research - 19 Apr 2024