Kimlun secured a contract worth RM780m in relation to the SSLR project. New construction orders in FY21 amount to RM800m, comfortably beating our and consensus expectations. Construction orderbook doubles to RM1.6bn, 2.5x cover similar to FY16 levels. Other opportunities in 2022 could come from PBH Sarawak Phase 2, Kuching ART, hospitals, private sector buildings and RTS. Going into 2022, we view Kimlun’s job visibility and solid orderbook reassuring. Increase FY22-23 forecasts by 9%. Upgrade to BUY with higher TP of RM1.07 (from RM0.85) after earnings adjustment, pegged to 8.0x P/E multiple. The stock currently trades at an attractive FY22 P/E of 6.6x and P/B of 0.4x. Upside risks: speedy project rollout in MY & SG and MRT3. Downside risks: 1) high material prices 2) slow job rollout and 3) political fluidity.

NEWSBREAK

First major win in 2021. Kimlun announced that Samling Resources has awarded the company a construction and maintenance contract in relation to the Sabah Sarawak Link Road (SSLR) worth RM780m. Works are located at Lawas-Long Lopeng junction, expected to begin imminently and ends in 2QCY25.

HLIB’S VIEW

Positive surprise. The RM780m job win brings Kimlun’s total construction contracts secured in FY21 to RM800m, comfortably beating our assumption and company’s guidance of RM250m/RM500m. With the newly secured contract, Kimlun’s outstanding construction orderbook doubles from RM800m to RM1.6bn translating to a 2.5x cover on FY20 construction revenue, similar to levels attained back in FY16. Including its outstanding precast orderbook, total orders amount to RM1.9bn or 2.4x cover on FY20 revenue.

Other opportunities. Some of the opportunities Kimlun may secure jobs from moving forward are Pan Borneo Sarawak Phase 2, Kuching Autonomous Rail Transit, hospital projects, private sector building works and Johor-SG Rapid Transit System. The impending vaccinated travel lane (VTL) with Singapore (SG) should aid recovery of private sector opportunities in Johor which bodes well for local players like Kimlun. Civil works for the RTS are also due to accelerate once utilities relocation is done by next year and should unlock precast opportunities in addition to ongoing orders from SG. Potential rollout of MRT3 (timing uncertain) would be a bonus given Kimlun’s track record in supplying precast products to MRT1 and 2. Going into 2022, we view Kimlun’s job visibility and solid orderbook reassuring.

Forecast. Increase FY22-23 forecasts by 9.0% and 8.9% after incorporating the recent job win. Our FY21 earnings declines marginally by -0.1% post-delaying recognition assumption to FY22.

Upgrade to BUY, TP: RM1.07. Upgrade to BUY with higher TP of RM1.07 (from RM0.85) after upward earnings adjustment, pegged to a higher 8.0x target P/E multiple (from 7.0x), similar to FY16 trading range. The stock currently trades at an attractive FY22 P/E of 6.6x and P/B of 0.4x (-1.6SD 10 year range). Upside risks: speedy project rollout in MY & SG and MRT3; Downside risks: 1) high material prices 2) labour shortage and 3) political fluidity.

Source: Hong Leong Investment Bank Research - 18 Nov 2021