Kimlun’s FY18 earnings of RM61.1m (-5% YoY) were within ours but above consensus expectations. YTD core PATAMI decreased by 11% due to lower construction and precast concrete products margins. Its outstanding construction order book now stands at RM1.9bn, translating to 2.4x cover on FY18 construction revenue. Management is targeting RM600-800m orderbook replenishment in FY19 and the focus will be on affordable housing development jobs. Maintain forecast and BUY rating with unchanged TP of RM1.58 pegged to 8x FY19 earnings.

Within HLIB but above consensus. Kimlun reported 4QFY18 results with revenue of RM310.7m (+18% QoQ, -17% YoY) and core earnings of RM22.9m (+46% QoQ, -5% YoY). This brings FY18 core earnings to RM61.1m, decreasing by 11% YoY. FY18 core earnings accounted for 104% of our (inline) and 115% of consensus (above) forecast respectively. 3.7 cents final dividend declared (FY17: 5.5 cents).

QoQ. Core PATAMI increased by 46% mainly due to stronger performance from both construction and manufacturing segment as higher revenue was generated from Pan Borneo Sarawak project, MRT2 sales orders and an IBS components sales order.

YoY. Core PATAMI decreased by 5% mainly due to lower revenue contribution from construction division.

YTD. Core PATAMI decreased by 11% mainly due to lower construction and precast concrete products margins. The drop in margin is mainly due to projects mix with higher composition of lower margin projects. Larger proportion of precast revenue was contributed by lower margins supply contracts and sales of lower margin quarry products.

Construction. Kimlun’s outstanding construction order book now stands at RM1.9bn, translating to a healthy cover ratio of 2.4x on FY18 construction revenue. Future jobs bidding will be focused on affordable housing development. Our FY19 orderbook replenishment assumption is RM500m which is below company target of RM600- 800m as we prefer to remain conservative under current construction sector downturn.

Manufacturing. Manufacturing order book stands at RM300m, representing c.1.5x cover on FY18 manufacturing revenue. FY19 manufacturing job wins are expected to be in the range of RM80-120m and are likely to be driven by both public and private jobs in Singapore as the construction demand is expected to remain stable in the near term.

Forecast. Maintain as the Results Were Inline.

Maintain BUY, TP: RM1.58. Maintain BUY rating with unchanged TP of RM1.58. TP is pegged to 8x FY19 earnings. We like Kimlun for its execution capability and undemanding valuation. The stock is trading at 6.5x PE multiple on FY18 earnings, representing -1.5SD below 5 year historical average.

Source: Hong Leong Investment Bank Research - 1 Mar 2019