Kimlun’s prospects should improve from rollout of infra projects such as MRT3, RTS, CSR, IMBRT, Sarawak ART & PBH Sarawak Phase 2. An increasingly vibrant rebound in construction activity in SG for 2021 should further aid recovery. Management sounded confident in meeting its job guidance despite only managing RM4m thus far. Our replenishment forecast for 2021 is 3-8% higher than guidance. Increase FY22 earnings by 9.1% and introduce FY23 forecasts of RM42m. Maintain HOLD with unchanged TP of RM0.91 based on FY21 EPS pegged to 7x P/E multiple. Key risks include: 1) high material prices 2) slow job rollout and 3) political fluidity.

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

Construction. Orderbook stands at RM1.1bn translating to 1.1x/1.8x based on FY19/20 revenues respectively. FY20 replenishment of RM464m was commendable (vs FY19: RM413m). Moving forward, Kimlun is targeting RM500m worth of jobs in FY21 which we believe will be back-loaded as work secured YTD is a mere RM4m. Private jobs tenderbook currently stands at RM1bn due to multiple tender extensions as developers held back due to MCO2.0. As for public infra jobs in Peninsular, developments include: (1) submitted bid for one package of CSR (2) attended RFI for MRT3 and (3) expecting tender for IMBRT by end 2021 or early 2022.

Sarawak updates. Progress rate for PBH Sarawak package is at 90%, on course for completion in 2021. Management is awaiting tenders for Phase 2 of the project but so far no indications to when the exercise will be held. Another possible job source is the Sarawak ART linking Kuching to Samarahan (Phase 1). Tenders could be called by end-2021 or early 2022 as construction could start in 2022. Funding from the 2021 state budget has also been allocated for the project. Nonetheless, we note the potential for delays should the current Covid-19 case spike in the state continue.

Manufacturing. Manufacturing orderbook stands at RM300m, representing c.1.1/1.8x cover on FY19/20 manufacturing revenue. FY20 job win of RM230m was surprisingly strong (FY19: RM150m) but management is sticking to RM150-180m guidqnce for FY21. Several projects to watch out for are RTS, MRT3 as well as Singaporean jobs like JRL and DTSS. Kimlun is a prime beneficiary of MRT3 rollout given that it has supplied MRT1&2 lines in the past (similar value of precast orders). Recall that MRT2 yielded c.RM270m of TLS/SBG orders for Kimlun. While we believe MRT3 would be no different given a similar project value, annual earnings accretion would be significantly lower with a much longer construction period. On a slightly bleaker note, precast jobs for the JRL require setting up a plant in SG. Should jobs from the JRL materialise, Kimlun may consider debt or an equity placement for that purpose.

Forecast. Increase FY22 earnings by 9.1% after imputing higher contract replenishment and recalibrating depreciation assumptions. Introduce FY23 earnings of RM42.3m.

Maintain HOLD, TP: RM0.91. Maintain HOLD rating with unchanged TP of RM0.91. TP is pegged to 7.0x FY21 earnings (near 5 year forward P/E mean). At FY21 P/E multiple of 7.2x, stock trades at near its 5 year average historical forward P/E multiple discount to the KLCON index. Upside risks: speedy project rollout in My and SG; Downside risks: 1) high material prices 2) slow job rollout and 3) political fluidity.

Source: Hong Leong Investment Bank Research - 23 Apr 2021