News

• Affordable housing contract. Kimlun announced that it has been awarded a contract from UEM Sunrise to build affordable apartments in Johor Bahru for RM230.7m. The construction works are expected to be completed by August 2017 (slightly above 2.5 years from now).

Comments

• Contract wins building up. This contract brings Kimlun’s YTD job wins to RM341m. Earlier this month, Kimlun also managed to secure 2 contracts totalling RM111m. Based on its 3Q14 total orderbook of RM1.5bn, after adjusting for an estimated burn rate of RM300m in 4Q and adding YTD job wins of RM341m, we estimate its current orderbook to stand at RM1.6bn. This implies an orderbook cover of 1.6x (trailing FY13) and 1.3x (prospective FY14).

• Replenishment catches up. While the momentum of Kimlun’s orderbook replenishment appears to be accelerating, we feel this will merely make up for last year’s lacklustre job wins.

• 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 bulk of its contracts (more than 70%) from that region. We expect property developers with projects in the 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 YTD job wins have been captured in our forecast via our RM800m orderbook replenishment assumption for FY15.

Rating

HOLD

• While the momentum of job wins appears to have a good start for the 1st month of 2015, we remain unconvinced that this can be sustained throughout the year given the slowdown witnessed in the Iskandar property market.

Valuation

• Our TP is unchanged at RM1.33 based on 10x FY15 earnings. This is circa 10% discount to its mean P/E of 11x.

Source: Hong Leong Investment Bank Research - 23 Jan 2015