Investment Highlights

• We maintain our forecasts and fair value (FV) of RM0.91 based on 9x FD FY22F EPS, in line with our benchmark forward target PE of 9x for small-cap construction stocks. There is no FV adjustment for ESG based on a 3-star rating as appraised by us (Exhibit 5). Maintain HOLD.

• Kimlun’s 1QFY21 net profit came in within our expectations at 22% of our full-year forecast but missed market expectations at only 19% of the full-year consensus estimates.

• Its 1QFY20 core net profit grew 9% YoY as both construction activities and precast concrete product deliveries (including exports to Singapore) began to adapt to operating under the new norms.

• During a recent analyst briefing, Kimlun reiterated its guidance for RM500mil construction job wins in FY21F (vs. our assumption that is slightly higher at RM550mil). So far in FY21F, it has yet to secure any significant contract while its outstanding construction order book currently stands at RM1.1bil.

• It is pursuing new jobs in Sarawak so that the resources to be freed up from its RM1.46bil Pan Borneo Highway (PBH) Sarawak contract (currently 90% completed), could be redeployed. It is eyeing work packages from PBH Sarawak Phase 2 that stretches from Miri to Limbang and Lawas at the northern tip of Sarawak (see Exhibit 2 for the alignment). It is also bullish on a RM6bil project known as Autonomous Rapid Transit Sarawak which is essentially a non-rail/bus rapid transit system to be added alongside the existing roads, and hence involving extensive road widening works.

• In Peninsular Malaysia, it is eyeing work packages from Central Spine Road, the Johor Bahru-Singapore Rapid Transit System (RTS) and Iskandar Malaysia bus rapid transit.

• In the private sector space, Kimlun has a tender book of about RM1bil, largely building jobs tendered out by property developers. However, these property developers have been postponing the contract awards (and asking the bidders to extend the validity of the tenders they have submitted). Weighed down by the lingering pandemic, the condition is still not conducive for them to aggressively put onto the market new property launches.

Source: AmInvest Research - 31 May 2021