-  We maintain HOLD on Kimlun Corporation Bhd with an unchanged SOP-based fair value of RM1.45/share, which implies an FY15F PE of 10.5x.

-  The group had secured two contracts last week from United Malayan Land Bhd’s (UMLand) subsidiary Dynasty View Sdn Bhd, worth a collective RM81mil.

-  The first contract is for the building and infrastructure works for two blocks of apartments in Johor Bahru for RM55.4mil. The job is expected to be completed by Jan 2018.

-  The second contract entails the building and infrastructure works for 57 units of houses in Johor Bahru for RM25.6mil. The job is expected to be completed by June 2016.

-  With the two latest wins, the group has secured RM422mil worth of new contracts for YTD FY15F. The group secured RM340mil worth of jobs earlier in January. This is positive considering the lull in new job wins last year (RM270mil; FY13: RM1.1bil).

-  The new wins are consistent with management’s guidance that developers are moving towards launching affordable homes given the general property slowdown in the state. We note that its recent jobs are mostly located in the Johor Bahru area.

-  Kimlun said in our recent meeting that it is bidding more actively for jobs this year. We believe this is crucial in order to replenish its order book (as a few of its projects won during the record year of 2013 will be completed soon).

-  We estimate an outstanding order book of ~RM1.4bil and a tender book of ~RM400mil for the group currently.

-  While the continued jobs flow is positive, we remain cautious given the general slowdown in Johor. In addition, the group’s margins had continued to contract in the past quarters.

-  We expect construction gross margin to stabilise at ~6% following the contraction from 11% in FY11. Margins for manufacturing should slightly improve as it completes delivery of segmental box girders for KVMRT2 in 1QFY15F.

-  No changes to our numbers as the value of contracts secured are within our new order book assumption of RM600mil for FY15F. We maintain HOLD.

Source: AmeSecurities