Kimlun’s outstanding construction orderbook now stands at c.RM1.4bn, translating to 1.4x cover on FY19 construction revenue. Kimlun’s manufacturing orderbook stands at RM370m, representing c.1.4x cover on FY19 manufacturing revenue. YTD, it has chalked up RM200m manufacturing jobs and RM420m construction jobs. Going forward, we reckon Johor-based Kimlun is well positioned to secure jobs from the upcoming Rapid Transit System. Tweak forecasts downwards by 2.9% for FY21-22. Maintain BUY rating with slightly lower TP of RM0.87 pegged to 6.8x P/E multiple.

Kimlun held an investor’s briefing last Fri with the following key takeaways:

Construction. Kimlun’s outstanding construction orderbook now stands at c.RM1.4bn, translating to 1.4x cover on FY19 construction revenue. YTD sum of job win amounted to RM420m, majority coming from private jobs achieving 84% of our replenishment assumptions. In addition to affordable housing jobs, Kimlun is looking to secure jobs from CSR, highway jobs in Johor and hospitals. In terms of work momentum, recovery is ongoing at 80% of pre-MCO levels.

Prospects in Sarawak. Progress of Pan Borneo Sarawak (PBH) package secured by Kimlun currently stands at c.80% with remaining contract value at RM200m to be completed by April 2021. Additionally, management is looking to pursue subcontracting opportunities from coastal road network as well as road network extensions to the PBH. This is a strategic shift from management’s previous focus of executing its PBH package. Given anticipated gradual recovery from private sector, Kimlun is reallocating more resources to securing infra jobs in Sarawak. With an existing presence in Sarawak coupled with healthy working relationship with its JV partner, we believe Kimlun could secure additional jobs there.

Manufacturing. Kimlun’s manufacturing orderbook stands at RM370m, representing c.1.4x cover on FY19 manufacturing revenue. YTD manufacturing job wins came in at RM200m beating our estimates at RM150m. For the remainder of FY20, more orders could come in from Singapore’s sewerage projects. Going forward, we reckon Johor based Kimlun is well positioned to secure jobs from the upcoming Rapid Transit System (RTS) of which construction should commence by Jan-21. We gather management is not only looking to secure contracts for materials supply but also looking to participate in civil works. Across the causeway, materials jobs from JRL should be delayed due to pandemic as packages awarded early this year have been slow to get off the ground.

Forecast Tweak both FY21-22 by -2.9% after reducing replenishment assumptions to RM420m from RM500m for FY20.

Maintain BUY, TP: RM0.87. Maintain BUY rating with slightly lower TP of RM0.87. TP is pegged to 6.8x FY21 earnings (5 year mean). We like Kimlun for its execution consistency, undemanding valuations and proxy to developments in Johor. Stock currently trades at an attractive FY21 & 22 P/E multiple of 6.0x and 5.9x respectively.

Source: Hong Leong Investment Bank Research - 1 Sept 2020