News

• Secures 2 contracts. Kimlun announced that it has been awarded 2 contracts totalling RM81m in Johor Bahru from UM Land. They comprise of: (i) 2 blocks of apartments (RM55.4m) to be completed in Jan 2018; and (ii) 57 units of houses (RM25.6m) to be completed in June 2016.

Comments

• More job wins… These contracts bring Kimlun’s YTD job wins to RM422m. Previously in Jan, Kimlun also managed to secure 3 contracts amounting to RM341m. 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 RM422m, we estimate its current orderbook to stand at RM1.6bn. This implies an orderbook cover of 1.7x (trailing FY13) and 1.3x (prospective FY14).

• …to make up for last year. While the momentum of Kimlun’s job wins are accelerating, we feel this will merely make up for last year’s lacklustre job wins which only amounted to RM270m vis-à-vis its previous replenishment rates of RM900-1200m for FY12-13.

• Slowdown concerns at Iskandar. Despite the strong showing of job wins in the month of Jan alone, we remain cautious about its sustainability. This is due to the slowdown witnessed in the Johor property market (especially Iskandar) due to oversupply concerns, which 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 the region to scale back on launches, which in turn, would slow down potential job wins to Kimlun.

Risks

• We are unconvinced that the momentum of job wins for Kimlun can be sustained at this rate. As such, upside risk to our estimates would come from stronger than expected job wins.

Forecasts

• No changes to our estimates as YTD job wins of RM422m 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 at a slight discount to its mean P/E of 11x.

Source: Hong Leong Investment Bank Research - 4 Feb 2015