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Author: HLInvest   |   Latest post: Fri, 23 Aug 2019, 9:41 AM

 

Kimlun Corporation - No Major Surprises

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Kimlun’s outstanding construction orderbook now stands at c.RM1.9bn, translating to 2.4x cover on FY18 construction revenue. Management’s FY19 orderbook replenishment target of RM600-800m remains intact and future jobs bidding will be focus on affordable housing development. We expect Kimlun to be one of the direct beneficiary of Sarawak robust development expenditure due to its established footprint in the state as one of the work package contractor in Pan Borneo Sarawak project. Kimlun’s manufacturing orderbook stands at RM300m, representing c.1.5x cover on FY18 manufacturing revenue. FY19 manufacturing job wins are expected to be in the range of RM80-120m. Going forward we understand that revenue contribution from manufacturing segment will step up and partially offset the weakness in construction segment caused by current domestic construction industry downturn. Maintain forecast and BUY rating with unchanged TP of RM1.58 (8x FY19 P/E).

Kimlun Held An Investor’s Briefing Last Friday With the Following Key Takeaways:

Construction. Kimlun’s outstanding construction orderbook now stands at c.RM1.9bn, translating to 2.4x cover on FY18 construction revenue. Management’s FY19 orderbook replenishment target of RM600-800m remains intact and future jobs bidding will be focused on affordable housing development. However, we maintain our orderbook replenishment assumption of RM500m as we prefer to remain conservative at this juncture given the slowing in contract flows post GE14.

Prospects in Sarawak. We expect Kimlun to be one of the beneficiaries of Sarawak’s robust development expenditure due to its established footprint in the state as one of the work package contractor in Pan Borneo Sarawak project. Sarawak state government has allocated c.RM9bn for development expenditure under state budget 2019 which is the biggest in the history of the state. Funding for those projects is expected to come from Sarawak’s state reserves (c.RM30bn) which may insulate the projects from risk of reduction of federal government spending.

Manufacturing. Kimlun’s manufacturing orderbook stands at RM300m, representing c.1.5x cover on FY18 manufacturing revenue. FY19 manufacturing job wins are expected to be in the range of RM80-120m. Going forward, manufacturing job wins are likely to be driven by the extension of Singapore MRT rail network and North South Corridor Expressway.

Outlook. Going forward, we understand that revenue contribution from manufacturing segment will step up and partially offset the weakness in construction segment caused by current domestic construction industry downturn. However we expect profit of the overall group to remain stable as manufacturing segment margin is generally higher and hence offsetting the shortfall in revenue.

Forecast. Maintained as the briefing yielded no major surprises.

Maintain BUY, TP: RM1.58. Maintain BUY rating with unchanged TP of RM1.58. TP is pegged to 8x FY19 earnings. We like Kimlun for its execution capability and undemanding valuations. The stock is trading at 6.2x PE multiple on FY19 earnings, represents 1.6x standard deviation below 5 years historical average.

Source: Hong Leong Investment Bank Research - 25 March 2019

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