Investment Highlights

• We maintain HOLD on Kimlun Corp (Kimlun) with a higher fair value (FV) of RM0.88/share based on 9x FD FY23F 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 our 3-star rating.

• Following a briefing during the weekend, we have raised our FY22F net profit forecast for Kimlun by 19% and FY23F by 4%, underpinned by a stronger order book of RM2.1bil as at endFY21 (against RM1.4bil as at end-FY20) amidst improved earnings visibility in the construction sector.

• The group’s earnings outlook is expected to brighten in FY22F on the back of unbilled progress billings from projects secured in FY21. The group said that rising building material coststhus far have not affected it much as most of the older projects that it is working on had already passed the steel and concrete intensive stage, i.e. the structural stage.

• Meanwhile, for new projects secured, the rising building material costs have already been factored in. The reopening of Singapore also bodes well for Kimlun as construction activities are normalising and labour shortage issues arebeing resolved.

• Currently, its outstanding order book stands at RM2.1bil, comprising RM1.7bil for construction and RM0.4bil for manufacturing.

• Kimlun replenished its construction order book by RM1.1bil in FY21. Notable project wins were the RM780mil Sarawak-Sabah Link Road (Lawas-Long Lopeng junction). We forecast a replenishment of RM550mil in FY22F and RM600mil in FY23F. Potential contracts include Phase 2 of the Pan Borneo Highway, Autonomous Rapid Transit (ART) Sarawak and the Johor-Singapore Rapid Transit System.

• Kimlun secured RM160mil worth of sales order for its manufacturing segment in FY21, mainly from the supply of precast components to Singapore’s MRT train centre. We forecast a replenishment of RM100mil in FY22F and RM120mil in FY23F, which could stem from the expansion of rail network in Singapore.

• Furthermore, the company is expected to benefit from the construction of the MRT3 where contracts are envisaged to be awarded in FY23F. Kimlun bagged the supply contract for the tunnel lining segment and segmental box girder worth RM272mil for the MRT1 and RM253mil for the MRT2.

• Challenges faced by Kimlun include: (i) an escalation/prolonged Ukraine-Russia war leading to a supply chain disruption and rising building material costs; (ii) delays/shelving of mega projects; and (iii) labour supply issues.

• Kimlun currently trades at 7.9x FY22F PE, which is close to 9x PE for small-cap construction stocks.

Source: AmInvest Research - 11 Apr 2022