Investment Highlights

• We maintain BUY on Kimlun with an unchanged fair value (FV) of RM1.09/share based on FY23F PE of 9x, in line with our benchmark for small-cap construction stocks. There is no FV adjustment for ESG based on our 3-star rating.

• Following a briefing last week, we fine-tune our earnings for FY22F-23F and raise FY24F earnings by 6% on deferred order book replenishment assumptions. Key takeaways are as follows: -
  • YTD replenishment to its order book is RM300mil, lower than our replenishment assumption of RM650mil for this year. Hence, we reduce our assumption by RM250mil to RM400mil for FY22F, while raising FY23F to RM950mil from RM800mil as we believe there will be near term uncertainties post-GE15 and potential recovery in FY23F.
  • Meanwhile, management estimates a 3%-point impact from FX movements to the gross profit margin of its manufacturing & trading segment, which registered 44% in 9MFY22. We expect this segment to be weaker in 4QFY22 due to the strengthening of MYR against SGD.
  • Kimlun has obtained approval for 737 foreign labours (comprised of Indonesians, Nepalese, Bangladeshis), of which 70 have arrived. The balance will arrive in batches by Mar/Apr 2023, which will bring its migrant workforce to close to 1K (including subcontractors).
  • For property segment, one-third of 100 Trees’s units, which have a GDV of RM61mil, in Bandar Seri Alam have been taken up. Kimlun also plans to launch Phase 2 of Bukit Bayu Development in 1HFY23. The development comprises 16 units of bungalows with GDV of at least RM40mil.
• Risks include (i) weaker-than-expected recovery of job flows; (ii) eroding profit margins from rising costs; and (iii) delays/cost revisions of mega projects.

• We think the stock is undervalued as it is currently trading at an attractive 6.1x FY23F PE, below our 9x benchmark for small-cap constructions stocks. Dividend yield is also decent at 4.6% for FY23F.

Source: AmInvest Research - 5 Dec 2022