News     Kimlun announced that it had been awarded a RM64.3m contract from Keck Seng (M) Berhad for the construction of 268 units of houses in Daerah Kulaijaya.

Comments     We are neutral with the contract win and it should make up part of our order book replenishment assumption of RM500m for FY13.

The construction works for the housing project are expected to be completed by July 2014. Based on Kimlun’s historical track record, we expect the gross margin for the project to hover at about 10%.

However, assuming a net margin of 7%, the whole project will contribute about RM4.5m in total to Kimlun’s bottom line for FY13 and FY14.

Outlook     To date, Kimlun has managed to secure a total order book replenishment of c.RM150m, making up 30% of our order book replenishment assumption of RM500m. Its current order book, which stands at c. RM1.7b, will last the group for another 2–3 years.

Going forward, we are maintaining our order book assumption of RM500m as we believe that Kimlun will continue to eye more building projects in the two regions of Klang Valley and Johor given its competitive edge in building projects which require 70% pre-cast components as it has a strong track record in this expertise in the pre-cast industry.

Forecast     No changes to our earnings forecasts as the contract makes-up part of our orderbook replenishment assumptions.

Rating    Maintain OUTPERFORM

Valuation     Our TP of RM1.77 offers an attractive upside of 17% while Fwd PER of 6x is close to trough levels.

We are maintaining our TP of RM1.77, which is based on 7.0x PER on its FY13 earnings.

Risks    Delays in executions and higher-than-expected building material prices.

Source: Kenanga