Investment Highlights

• We maintain our forecasts, FV of RM1.81 and HOLD call. Our FV is based on 8x FY19F EPS, in line with our benchmark forward target PE of 7-9x for small-cap construction stocks.

• Kimlun has secured two contracts worth a total of RM225mil comprising: (1) a RM144.1mil design and build contract for roads and an interchange in Johor Bahru, Johor, from Focus Ace Construction Sdn Bhd; and (2) a S$27mil (RM81mil) supply contract for pre-cast concrete building components from M+W Singapore Pte Ltd.

• We believe the construction job in Johor Bahru is the first key construction contract Kimlun has secured in FY18, boosting its outstanding construction order book to RM1.94bil. We are keeping our forecasts that assume construction job wins of RM700mil annually in FY18-20F.

• Meanwhile, the latest pre-cast concrete product supply contract in Singapore has boosted KImlun’s manufacturing order backlog to RM421mil. Backed by this order backlog, we believe Kimlun’s manufacturing business could comfortably meet our topline forecasts of RM160-200mil annually in FY18-20F.

• We maintain our view that Kimlun’s construction and precast concrete product divisions will not be spared the weakened prospects of the local construction sector, as the government reconsiders various mega infrastructure projects on grounds of fiscal prudence. Apart from the KLSingapore High-Speed Rail (HSR) and MRT3, we believe more mega projects could potentially be deferred, scaled down or cancelled. Also, the introduction of a more transparent public procurement system to plug leakages will translate to lower margins for players. Not helping either, is the prolonged downturn in the local property market that weighs down on Kimlun’s property division.

• We take slight comfort in Kimlun’s construction and manufacturing order backlogs of RM1.94bil and RM421mil respectively, which will keep it busy at least for the next 1- 2 years.

Source: AmInvest Research - 7 Jun 2018