News

• Office complex in JB. Kimlun announced that its 40% JV (JBB Kimlun) has secured a RM263m contract from Astata Padu SB which involves the construction of a 1 block office complex for MBJB (Johor Bahru town council) in Plentong, Johor. The job is estimated to be completed by Oct 2019.

Comments

• First contract win for the year. Based on Kimlun?s 40% share in the JV, its scope of work amounts to RM105m. However, we do not discount the possibility of Kimlun undertaking a larger chunk of the job at the working level. This represents Kimlun?s first announced contract win for the year.
• Orderbook at healthy level. As of end-FY16, Kimlun?s orderbook stood at RM1.9bn, comprising RM1.7bn for construction and RM260m for manufacturing. This translates to an overall cover of 2.1x on FY16 revenue which is healthy considering the relatively fast turnaround nature of its jobs.
• Widening its scope. Overall, management is comfortable to achieve new job wins of RM600-700m for FY17. However, this could surprise on the upside should Kimlun manage to secure chunky jobs such as the LRT3 where it has been invited to bid for 2 viaduct packages.
• Earnings could decline this year. Whilst Kimlun posted record profits in FY16 of RM82m, this could potentially stage a decline in FY17. This is due to (i) downward normalisation in construction margins and (ii) timing gap for its manufacturing division (completion of SMRT Thompson Line and commencement of MRT2).

Risks

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

Forecasts

• As YTD job wins of RM105m is still within our full year assumption of RM700m, we maintain our earnings forecast. Rating Maintain HOLD, TP: RM2.27
• We maintain our HOLD rating on Kimlun in view of the potential earnings decline (-14% YoY) that is expected this year.

Valuation

• Our TP of RM2.27 is based on a 10x P/E multiple ascribed to FY17 earnings.

Source: Hong Leong Investment Bank Research - 09 May 2017