Summary

• Kimlun Corporation Bhd’s long-term prospects remains uncertain owing to the depleting construction orderbook (approximately RM1.40bn as of 30th June 2020) that will provide earnings visibility over the next 2 years, whilst the manufacturing segment orderbook of RM370.0m will also sustain the segment earnings over the next 2 years.

• Moving forward, the construction segment will remain as the anchor to the total revenue, following more than RM400.0m of smaller packages contract secured year to-date (YTD). In the meantime, we note that Kimlun is participating in several mega infrastructure projects, namely; Central Spine Road, Johor Bahru-Singapore Rapid Transit System (supply of components) and civil engineering for Coastal highway and Pan Borneo extension.

• Even so, we are ceasing coverage on Kimlun Corporation Bhd due to reallocation of internal resources and the lack of retail and institutional interest.

• We remain cautious in view of the on-going domestic political tussling that may continue to delay the award of the said mega-infrastructure projects, coupled with the sluggish property development market that will continue to see new launches being held back.

• Our last recommendation on Kimlun was BUY fair value was at RM0.87. The fair value is derived from ascribing a target PER of 9.0x to its FY21f fully diluted construction earnings and PER of 6.0x to its fully diluted manufacturing earnings, while its property development segment’s valuation pegged at 0.4x its BV due to its relatively small-scale development projects

Source: Mplus Research - 2 Nov 2020