News

• Housing job in Johor. Kimlun announced that it has been awarded a RM98.3m contract by Mah Sing (HOLD, TP: RM1.41) to build 492 units of houses in Mukim Plentong, Johor Bahru. The works are expected to be completed by July 2018.

Comments

• Strong showing for job wins... With this recent contract, we estimate YTD job wins to stand at RM1bn. Despite being in the early days of 2Q16 YTD job wins have already surpassed the full year sum of RM830m achieved last year. Management is targeting for another RM200-400m worth of job wins for the remainder of FY16. If achieved, this could surpass its previous high of RM1.2bn in FY12.

• ...supporting healthy orderbook level. We estimate Kimlun’s total orderbook (i.e. construction + manufacturing) to now stand at RM1.8bn. This translates to a cover ratio of 1.8x on FY15 construction revenue which we regard as relatively healthy considering the fast turnaround nature of Kimlun’s jobs.

• Surviving the slowdown. Management shared that the slowdown at Iskandar has impacted high rise buildings the hardest. To counter this, Kimlun is tapping on other segments such as affordable housing, factories and industrial buildings. It has also started tendering more aggressively within the infra space.

Risks

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

Forecasts

• As YTD job wins of RM1bn is still within our full year assumption of RM1.45bn (construction: RM1.2bn and manufacturing: RM250m), we maintain our earnings forecast.

Rating

BUY

• Kimlun has manged to successfully reduce its dependency on the Iskandar property market as evident 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 - 28 Apr 2016