News

• SBG contract award. Kimlun announced that it has been appointed by MRT Corp as the designated supplier of segmental box girders (SBG) for the Sg Buloh-Serdang- Putrajaya line (MRT2) for a contract sum of RM199.9m, which will be spread over a period of 44 months.

Comments

• As expected. The contract award is within our expectations as Kimlun was also previously appointed as one of the two designated suppliers of SBGs and tunnel lining segments (TLS) for MRT1. However, the SBG contract sum of RM199.9m is lower than what it previously took for MRT1 at RM223.2m. This is likely due to the shorter elevated stretch of MRT2 at 38.7km as opposed to 41.5km for MRT1.

• TLS contract could be larger. The next MRT2 job that we expect Kimlun to snag is the TLS contract. Similar to the SBG contract, Kimlun was also one of the two TLS suppliers for MRT1 with its portion worth RM48.5m. Based on the longer underground stretch of MRT2 at 13.5km vs 9.5km for MRT1, we estimate that Kimlun should be able to secure a TLS contract worth at least RM69m.

• Strong manufacturing replenishment. Based on Kimlun’s manufacturing orderbook of RM170m as of end FY15, we estimate this sum to now stand at RM370m. This implies 1.9x cover ratio on FY15 manufacturing revenue. On an overall orderbook basis (i.e. including construction jobs), we estimate this to currently amount to RM1.7bn, translating to a 1.7x cover ratio on FY15 total revenue.

• Strong start for job wins. Including this recent SBG contract, Kimlun’s YTD job wins now totals RM911m which is indeed a strong start considering that it is only the end of 1Q16 (FY15 full year: RM830m).

Risks

• Iskandar slowdown hampering new job wins for the construction division.

Forecasts

• As YTD job wins of RM200m for its manufacturing segment is within our replenishment target of RM250m, we keep our earnings forecast unchanged. There is a strong likelihood that this may be revised upwards as our assumption appears to be rather conservative.

Rating

• Maintain BUY, TP: RM2.23
• Kimlun has managed to successfully reduce its dependency on the Iskandar property market as evidenced by its robust job flows. It is also a prime beneficiary of the MRT2 rollout via the supply of SBG and TLS.

Valuation

• Our TP of RM2.23 is based on an unchanged 11x P/E multiple (mean: 10.7x) pegged to FY16 earnings.

Source: Hong Leong Investment Bank Research - 30 Mar 2016