News

• 2 contract wins . Kimlun announced that it has been awarded 2 contracts comprising: (i) 89 units of factories (RM63.6m) in Johor Bahru for United Malayan Land; and (ii) Phase 3 of the Southern Industrial and Logistics Cluster (RM47m) in Nusajaya for UEM Land. The former contract is expected to be completed in Dec 2016 and the latter in April 2016.

Comments

• Good start for job wins. These 2 contracts bring 2015 YTD orderbook replenishment to RM110.6m. With its total orderbook (construction + manufacturing) at RM1.5bn as of 3Q14 and after adjusting for an estimated RM300m burn rate in 4Q, these 2 new contracts would bring its estimated orderbook to RM1.3bn. This implies an orderbook cover of 1.4 on FY13 revenue.

• Iskandar slowdown a concern . We remain cautious on the slowdown witnessed in the Johor property market (especially Iskandar) due to oversupply concerns. This slowdown would have a negative impact on Kimlun as it derives the bulk of its contracts (more than 70%) from that region. We expect property developers with projects in t he region to scale back on their launch momentum, which in turn, would slow down potential job wins to Kimlun.

Risks

• Slowdown in Iskandar would hamper: (i) construction division since Kimlun derives most of its jobs there; and (ii) property division given the impending launch of Opus Medini

Forecasts

• No changes to our estimates as these 2 job wins have been captured in our forecast via our RM800m orderbook replenishment assumption for FY15.

Rating

HOLD

We think the outlook will remain challenging for Kimlun amidst the slowdown in Iskandar. However, we believe this has been priced in with the 27% share price decline in the last 12 months. Maintain HOLD.

Valuation

• Our TP is unchanged at RM1.33 based on 10x FY15 earnings. This is at a s light discount to its mean P/E of 11x which we feel is warranted given the weak sentiment at Iskandar.

Source: Hong Leong Investment Bank Research - 12 Jan 2015