News

• Bags condo job. Kimlun announced that it has been awarded a RM214.8m contract from Hillcrest Gardens to build 2 blocks of condos and ancillary buildings in Petaling, Selangor. The works are scheduled to be completed by June 2020.

Comments

• Job wins flowing well. Based on Kimlun’s announced contract wins on Bursa, we estimate its YTD sum to now stand at RM320m. This would bring its orderbook balance to RM2.5bn, comprising RM2.2bn for construction and RM320m for manufacturing. Overall, this would translate to a cover of 2.7x on FY16 revenue, which is a rather strong considering the relatively fast turnaround nature of Kimlun’s jobs.
• Sizable win from LRT3? 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. Contracts for the LRT3 have just begun to roll out since last month (2 viaduct packages awarded thus far).
• Earnings to decline this year. Whilst Kimlun posted record profits in FY16 of RM82m, this should 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 property slowdown hampering new job wins for the construction division.

Forecasts

• As YTD job wins of RM320m is still within our full year assumption of RM700m, we maintain our earnings forecast.

Rating

Maintain HOLD, TP: RM2.30

• We maintain our HOLD rating on Kimlun in view of the potential earnings decline (-16% YoY) that is expected this year.

Valuation

• Our TP of RM2.30 is based on a 10x P/E multiple ascribed to mid-FY18 earnings.

Source: Hong Leong Investment Bank Research - 25 Sep 2017