• HLIB institutional Research maintains BUY on KIMLUN with a TP of RM2.66 (+27.2% upside). Kimlun is a good proxy to the booming local construction and infrastructure sectors given its involvement in MRT2, Pan Borneo Highway and the construction of affordable housing. Its earnings profile has improved tremendously as it no longer relies solely on residential building jobs, after expanding into the construction of a hospital (Gleneagle Medini, RM105m), a shopping mall (IGB's Southkey Megamall, RM38m) and hostels (Sime Darby's Pagoh Education Hub, RM38m), as well as infrastructure (a section of Pan Borneo Highway, RM1.46bn, via a 30%-owned JV with Zecon).
   
• Unjustified construction laggard. After hitting a 52-week high of RM2.26 (4 Nov), Kimlun’s share prices slid 13.7% to a low of RM1.95 (30 Nov) before closing at RM2.09 yesterday. Currently, Kimlun is trading at undemanding valuation of 8.6x FY17 P/E, which is 10.4% and 31% lower than its 3-year average 9.6x and HLIB universe ~12.5x, respectively. We opine that the share price weakness offers investors good bargain hunting opportunity, premised on its healthy orderbook of RM2.1bn (Construction: RM1.8b; Manufacturing: RM0.33b), providing visibility for the next 2 years.? Kimlun is a prudently run construction outfit with commendable result delivery and strong on job wins. YTD, Kimlun has managed to secure jobs in excess of RM1.3bn and is looking to add another RM200-300m for the remainder of the year. Looking ahead, potential job wins could stem from (i) the LRT3 where it has been prequalified for both the construction and precast roles, (ii) affordable housing under PR1MA and PP1AM in which it has already submitted some bids and (iii) the Central Spine Road.
   
• Potential downtrend reversal to rewrite 52-week high amid hammer candlestick pattern. We expect prices to bottom up amid the formation of hammer candlestick and managed to close above the 100-d SMA levels (resistance-turned-support of RM2.01 now). A decisive breach above RM2.16 (50-d SMA) is likely to spur prices higher towards the RM2.26 and our long term objective of RM2.45 (161.8% FR). Key supports are RM2.01 (20 Feb low) and RM1.95 levels. Cut loss at RM1.91.

Source: Hong Leong Investment Bank Research - 2 Dec 2016