Kimlun’s FY21 core PATAMI of RM1.8m were below our and consensus expectations. 4QFY21 was plagued by positive cases at construction sites and late approvals. Recovery prospects for FY22 should be intact, underpinned by its RM2.1bn orderbook. Replenishment opportunities could come from PBH Sarawak Phase 2, Kuching ART, hospitals, private sector buildings and RTS. Going into 2022, we like Kimlun for its solid orderbook. Maintain forecasts. Maintain BUY with lower TP of RM1.02 based on 8.0x FY22 EPS.

Below expectations. Kimlun reported 4QFY21 results with revenue of RM159.3m (48.5% QoQ, -34.6% YoY) and core LATAMI of -RM1.7m (against core LATAMI of -RM8.0m in 3QFY21, and core PATAMI of RM12.0m in 4QFY20). This brings FY21 core PATAMI to RM1.8m, decreasing by -88.4% YoY. Results were below our and consensus expectations at 13% of full year forecasts. Note that 4QFY21 earnings are adjusted for RM2.3m of receivables write-off.

Deviation. Result shortfall is attributed to weak ramp up in 4Q for its construction division, made worse by sales reversal on the property side.

Dividends. DPS of 1 sen was declared (ex. date to be announced).

QoQ. Kimlun’s core loss narrowed significantly mainly lifted by its construction segment (revenue: +60.4%) as a large part of restrictions were reflected in mid- 3QFY21. Nonetheless, the segment was unable to fully ramp up in 4QFY21 as sites were hit by sporadic Covid-19 cases which curtailed operating days. Its property division was the key disappointment deteriorating QoQ with sales reversal seen during the quarter resulting from slow approvals. However, we understand that the necessary approvals have since been obtained in 1QFY22.

YoY/YTD. Performance was substantially weaker on a YoY and YTD basis dragged by its construction and manufacturing divisions from substantial operational curtailment and positive cases in 4QFY21 and FY21.

Construction. Outstanding construction orderbook amounts to RM1.7bn, translating to a healthy 3.3x cover. This includes the recently secured RM1bn worth of projects in 4QFY21 namely RM780m from Sabah Sarawak Link Road project. Moving into 2022, Kimlun is targeting RM500m-700m contract replenishment in 2022. Sources of jobs could include Pan Borneo Sarawak Phase 2, Sarawak Metro, hospitals, private sector building works, CSR and Johor-SG RTS. 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. The recent relaxation of quarantine requirements could help normalise site productivity, in our view.

Manufacturing. Kimlun’s outstanding manufacturing orderbook stands at RM400m. Guidance on replenishment next year is RM100-140m likely to consist of new building related orders and possibly infra related orders from SG. Should MRT3 roll out, Kimlun stands as a key beneficiary given its track record in supplying precast products to MRT1 and 2.

Forecast. No change as we expect Kimlun to turn the corner with reopening at full swing.

Maintain BUY, TP: RM1.02. Maintain BUY with slightly lower TP of RM1.02 (share base adjustment) after pegging FY22 EPS to 8.0x target P/E multiple (unchanged), similar to FY16 trading range. The stock currently trades at an attractive FY22 P/E of 6.2x and P/B of 0.38x (-1.5SD 10 year range). Risk reward looks attractive at this juncture.

Source: Hong Leong Investment Bank Research - 28 Feb 2022