Kimlun’s 1HFY19 earnings of RM29m (+31% YoY) were within both ours and consensus expectations. YTD core PATAMI increased due to higher contribution from both construction and manufacturing segment. Kimlun’s outstanding construction orderbook now stands at RM1.7bn, translating to a healthy cover ratio of 2.1x to FY18 construction revenue. Its manufacturing orderbook stands at RM300m, representing c.1.5x cover on FY18 manufacturing revenue. Maintain forecast and BUY rating with unchanged TP of RM1.58. TP is pegged to 8x FY19 earnings. We like Kimlun for its execution capability and undemanding valuations.

Within expectations. Kimlun reported 2QFY19 results with revenue of RM325.2m (+2% QoQ, +49% YoY) and core earnings of RM13.4m (-16% QoQ, +37% YoY). This brings 1HFY19 core earnings to RM29.4m, increasing by 31% YoY. The core earnings accounted for 47% of our full year forecast (consensus: 48%) which is within expectations.

QoQ. Core PATAMI decreased by 16% mainly due to lower margin in manufacturing segment as lower margin sales contracts contributed a higher proportion of precast concrete products revenue.

YoY/ YTD. Core PATAMI increased by 37% and 31% both YoY and YTD respectively due to higher contribution from both construction and manufacturing segment.

Construction. Higher contribution from construction segment (revenue +34% YTD) is mainly due to higher revenue contribution from Pan Borneo Highway Sarawak (PBH) project on higher percentage of completion. Kimlun has secured new construction contracts with total value of RM204m YTD. Its outstanding construction orderbook now stands at RM1.7bn, translating to a healthy cover ratio of 2.1x to FY18 construction revenue.

Manufacturing. Manufacturing segment recorded a superb performance (revenue +121% YTD) due to higher revenue from MRT2 project and higher volume of quarry products supplied to the PBH. Kimlun’s manufacturing orderbook 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. Going forward, manufacturing job wins are likely to be driven by the extension of Singapore MRT rail network and North-South Corridor Expressway.

Forecast. Maintain as the Results 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 valuations.

Source: Hong Leong Investment Bank Research - 30 Aug 2019