Investment Highlights

• We maintain BUY on Kimlun with an unchanged fair value (FV) of RM1.17/share based on a FY23F PE of 9x. This is in line with our benchmark for small-cap construction stocks. There is no FV adjustment for ESG based on our 3-star rating.

• Kimlun has accepted the award of 2 contracts from Horizon Hills Development pertaining to main building works for 78 units of shop offices and a shopping mall with facilities in Pulai, Johor Bahru.

• The total value for both contracts are RM94.5mil, which are expected to be completed by 2Q2025. We estimate the accretion to Kimlun’s gross profit (GP) at RM3mil per year (or 3% of FY23F group GP).

• However, we make no changes to our FY23F-25F earnings as the awards are within our replenishment assumption of RM680mil. Potential jobs that Kimlun may win include Pan Borneo Highway, Autonomous Rapid Transit Sarawak, Johor-Singapore Rapid Transit System, road upgrading works in Johor, affordable housing projects and supply of precast concrete in Singapore.

• Looking ahead, we believe that Kimlun could benefit from the construction of MRT3. Subcontracts are envisaged to be awarded in late-2023F.

• Recall that in 2012 and 2016, Kimlun bagged sizeable supply contracts of RM524mil involving tunnel lining segments and segmental box girders for MRT1 and MRT2.

• Risks include (i) weaker-than-expected recovery of job flows; (ii) eroding profit margins from rising costs; and (iii) shelving of mega projects.

• We believe that the stock is currently undervalued, trading at FY23F PE of 5.5x, substantively below our 9x benchmark for small-cap construction stocks.

Source: AmInvest Research - 11 May 2023