Contract flows picking up momentum. The announcement came in as a positive surprise to us, with KimLun's YTD jobs securedstanding tall at RM445m. As we step into 2QCY12, KimLun has already exceededour expectations by achieving 74.2% of our orderbook replenishment forecast ofRM600m p.a. for both FY12 and FY13. Nonetheless, we make no changes to ourassumptions for now, although there is a potential upside bias should the groupsecure the supply of tunnel lining segment for the KV MRT SBK line as well assome possible job flows from the Singapore MRT on new line expansions.

Keep an eye out fortunnel lining segment. Earlier last month, KimLun entered into a sale andpurchase agreement to acquire a parcel of industrial land in Seremban for RM15.5mto construct a new precast  plant. Thisexpansion will prime the company for potentially securing some tunnel liningsegment contracts in the underground portion of the MRT SBK line. We expect itsshare price to continue to trend upwards, pending the official award of thetunneling portion of the said line by MRT Corp come April this year. Weunderstand that the Gamuda-MMC JV,  whichwe believe  is  likely to snag  the tunneling portion, hadvisited KimLun's existing precast plants to conduct quality control checks.Over the medium term, we expect to hear more from the Iskandar region while inthe long run, we believe KimLun will likely gain a stronger foothold inSingapore, as we understand that a 35km underground cable tunnel is likely tobe awarded this year, with the 50km Thompson Easter Region line also in thepipeline. 

BUY. Maintain ourBUY call at an unchanged FV of RM2.07 based on 10x FY12 PER. We continue tolike KimLun given its strong execution track record, sturdy job wins YTD, aswell as its increasing presence in the Johor and Singapore region. Thus, weview it as the best small cap proxy for Malaysia's construction sector.

Source: OSK188