Investment Highlights

• We maintain BUY on Kimlun Corp (Kimlun) with an unchanged fair value (FV) of RM1.08/share, based on FY24F PE of 9x, in line with our benchmark for small-cap construction stocks. There is no FV adjustment for ESG based on our neutral 3-star ESG rating.

• Kimlun has accepted the awards of 2 contracts from Eco World Development Group for construction works in Johor for a block of service apartment with amenities and 148 units of link houses and ancillary buildings.

• The total value for both contracts is RM140.2mil. The construction of the link houses is expected to be completed in 1QFY25 and the apartment in 1QFY26. We estimate the contract to generate a gross profit (GP) at RM3mil per year or 4% of Kimlun’s FY23F group GP.

• However, we make no changes to FY23F-FY25F earnings as the awards are within our replenishment assumptions of RM1bil for the construction/engineering segment. With these contracts, Kimlun has achieved 88% of its FY23F replenishment target for the construction/ engineering segment.

• Ongoing projects include Sabah-Sarawak Link Road (RM780mil), main building works for 2 blocks of apartments in Selangor (RM238mil) and supply of precast concrete components for the Singapore Deep Tunnel Sewerage Phase 2 (S$23.9mil) and Singapore MRT projects (S$45mil). Going forward, potential jobs include expansion of BRT in Johor and Klang Valley, Pan Borneo Highway, Johor-Singapore Rapid Transit System, highway upgrading works in Johor and affordable housing projects in Malaysia.

• Looking ahead, we believe more contracts will be awarded in 2HFY23 as the construction sector in Johor ramps up. Jobs won in 1HFY23 include 2 blocks of service apartments in Selangor (RM238mil) and a block of affordable apartment and 166 units of double storey linked houses in Johor Bahru, Johor (RM95mil).

Source: AmInvest Research - 3 Oct 2023