Results

• Kimlun reported 1QFY16 results with revenue of RM234.8m (-27% YoY, +1% QoQ) and earnings of RM17.1m (+21% YoY, -20% QoQ).

Deviation

• 1Q earnings made up 28% of our full year forecast (27% of consensus) which we deem inline given our expectations of softer quarters ahead.

Dividends

• None declared.

Highlights

• Job wins have been robust. We estimate Kimlun’s YTD job wins to stand at RM975m. This has already surpassed the FY15 full year sum of RM750m. Kimlun’s orderbook level remains healthy at RM1.5bn, implying a decent cover ratio of 1.7x on FY15 construction revenue.

• Tapping on other avenues. In view of the soft property market at Iskandar, Kimlun is tapping on other segments such as affordable housing, factories, industrial lots and jobs within the Klang Valley. It has also placed a greater focus on infra jobs and tendered for projects such as DASH (RM4bn), SUKE (RM4bn) and Central Spine Road (RM8bn).

• TLS contract will be next. Kimlun has been prequalified for the MRT2 to supply tunnel lining segments (TLS). Back in March, it managed to win a RM200m contract to supply segmental box girders (SBG) for the MRT2. We reckon that the TLS contract for MRT2 should be at least worth RM69m with Kimlun as a top contender to secure it. Its manufacturing orderbook stands at RM340m, implying 1.8x cover on FY15 manufacturing revenue.

Risks

• Slowdown in Iskandar would hamper job flow prospects.

Forecasts

• Although the results were inline, we adjust FY16 earnings down by -3% and FY17 upwards by 5% due to bookkeeping changes to our model following its annual report release.

Rating

• Maintain BUY, TP: RM2.15

• Kimlun is a prudently run construction outfit that has managed to successfully reduce its dependency on the Iskandar property market. It is also a prime beneficiary of the MRT2 rollout via the supply of SBG and TLS.

Valuation

• TP is reduced slightly from RM2.23 to RM2.15 (still based on 11x P/E target) following our earnings cut for FY16.

Source: Hong Leong Investment Bank Research - 31 May 2016