Kimlun’s outstanding construction orderbook now stands at c.RM1.7bn, translating to 2.1x cover on FY18 construction revenue. 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 we understand that revenue contribution from manufacturing segment will step up and partially offset the weakness in construction segment caused by current domestic construction industry slowdown. Maintain forecast and BUY rating with unchanged TP of RM1.58 (8x FY19 P/E).

Kimlun Held An Investor’s Briefing Yesterday With the Following Key Takeaways:

Construction. Kimlun’s outstanding construction orderbook now stands at c.RM1.7bn, translating to 2.1x cover on FY18 construction revenue. YTD sum of job wins amounted to RM270m with 80% from building jobs and the rest from infrastructure. Management stressed that RM500-600m replenishment remains intact and future jobs bidding will be focused on affordable housing development due to the strong demand for such homes.

Prospect in Sarawak. Progress of Pan Borneo Sarawak (PBH) package secured by Kimlun currently stands at c.60% and hence we do not expect any drastic change on the package after the removal of PDP given the advanced stage of works. Kimlun is not actively participating in tender for other Sarawak state related projects such as Coastal Road project as the company prefers to focus on the execution of PBH package.

Manufacturing. 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 with YTD job wins at RM60m. Going forward, manufacturing job wins are likely to be driven by the extension of Singapore MRT rail network and North-South Corridor Expressway.

Property. There is no on-going development carried out by Kimlun on its existing land bank totalling 204 acres and no new launches are expected in the foreseeable future due to the persistent weakness of property market.

Outlook. Going forward, we understand that revenue contribution from manufacturing segment will step up and partially offset the weakness in construction segment caused by current domestic construction industry slowdown. However we expect profit of the overall group to remain stable as manufacturing segment margin is generally higher and hence offsetting the shortfall in revenue.

Forecast. Maintained as the briefing yielded no major surprises.

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. The stock is trading at 6.3x PE multiple on FY19 earnings, represents -1.6SD below 5 years historical average.

Source: Hong Leong Investment Bank Research - 26 Sept 2019