Apart from slower-than-expected ramp up in 4Q due to sporadic cases there was little surprise from the briefing held recently. Total orderbook of RM2.16bn, 2.7x cover is reassuring. Other opportunities in 2022 could come from PBH Sarawak Phase 2, Kuching ART, hospitals, private sector buildings and RTS. Going into 2022, we like Kimlun for its pipeline visibility and solid orderbook. Should MRT3’s targeted timeline for open tender in 2Q22/3Q22 materialise , Kimlun’s precast segment should be a key beneficiary in FY23. Cut FY21 earnings by -11.0% post-guidance. Maintain BUY with unchanged TP of RM1.07 based on FY22 EPS pegged to 8x P/E multiple. The stock currently trades at an attractive FY22 P/E of 6.0x and P/B of 0.35x (-1.6SD 10 year range). Key risks include: 1) high material prices 2) slow job rollout 3) labour shortages and 4) Covid-19 setbacks.

We Attended Kimlun’s Briefing Recently With the Following Key Takeaways:

Construction. Outstanding construction orderbook amounts RM1.8bn lasting the next 2 years. This includes the recently secured RM1bn worth of projects in 4QFY21 namely RM780m from Sabah Sarawak Link Road project. It was a very strong turnaround in contract replenishment after only chalking up RM20m of jobs up until 3QFY21. Moving into 2022, Kimlun is guiding for a RM500m-700m contract replenishment target in 2022. Sources of jobs could include Pan Borneo Sarawak Phase 2, Kuching Autonomous Rail Transit, hospital projects, private sector building works, Central Spine Road and Johor-SG Rapid Transit System. The vaccinated travel lane (VTL) with Singapore (SG) could aid recovery of private sector opportunities in Johor which bodes well for local players like Kimlun. We view Kimlun’s job visibility and solid orderbook reassuring. Execution-wise, we were slightly disappointed by management’s guidance of slower-than-expected ramp up in 4QFY21 resulting from sporadic Covid cases onsite.

Manufacturing. Kimlun’s outstanding manufacturing orderbook stands at RM360m. Total external orders secured in 2021 thus far amounts to RM162m which are propped up by IBS building orders. Guidance on replenishment next year is RM100- 140m likely to consist of new building related orders and possibly infra related orders from SG. Commencement of civil works for the RTS should unlock precast opportunities. While the replenishment guidance for 2022 is flattish, we note that should MRT3’s targeted open tender timeline in 2Q22/3Q22 proceed smoothly, 2023 orders could come in much stronger. Kimlun’s track record in supplying precast products to MRT1 and 2 bodes well for its chances.

Property. Kimlun recently launched 60 units of Semi-D houses in Bandar Seri Alam, Johor, with estimated GDV of RM61m. 2022 should see launches for Phase 2A of Bukit Bayu carrying a GDV of 37m as well as Phase 2B (GDV: RM50m).

Forecast. Cut FY21 earnings by -11.0% after lowering burn rate.

Maintain BUY, TP: RM1.07. Maintain BUY with unchanged TP of RM1.07, pegged to a 8.0x target P/E multiple (unchanged), similar to FY16 trading range. The stock currently trades at an attractive FY22 P/E of 6.0x and P/B of 0.35x (-1.6SD 10 year range). Risk reward looks attractive at this juncture. Upside risks: speedy project rollout in MY & SG and MRT3; Downside risks: 1) high material prices 2) labour shortage 3) political fluidity and 4) Covid-19 setbacks.

Source: Hong Leong Investment Bank Research - 17 Dec 2021