News    Kimlun announced that they were awarded c.RM43m contract from SK Engineering & Construction in Singapore for the tunnel lining segment supply for East-West Transmission Cable Tunnel Project EW2. 

Comments    We are neutral with the RM43m TLS contract award from SK Engineering & Construction for the supply and delivery of precast concrete tunnel segment linings (“TLS”) to the East-West Transmission Cable Tunnel Project EW2 as it makes up part of our orderbook replenishment assumption of RM500m for FY13.

The supply of the TLS is expected to spread over a period of approximately 33 months. Assuming a conservative net margin  of 10%, the whole project would translate about RM4.3m to Kimlun’s bottom line. 

Outlook   To date, Kimlun has managed to secure a total orderbook replenishment of c.RM190m making up 39% of our orderbook replenishment assumption of RM500m. Its current order book, which stands at c. RM1.6b, will last the group for another 2 – 3 years.

Going forward, our orderbook assumption of RM500m is maintained as we believe that Kimlun will be able to secure for more building projects in the two regions (Klang Valley and Johor) given their competitive edge in building projects, which require 70% pre-cast components given their strong track record their expertise in the pre-cast industry.

Forecast   No changes to our earnings forecasts.

Rating  Maintain OUTPERFORM

Given the optimistic outlook on the construction sector, we believe that Kimlun would be the beneficiary for the upcoming MRT Line 2 as they are one of the suppliers for the TLS for the Sg. Buloh -Kajang MRT line.

Valuation   We are keeping our TP of RM2.28 based on 9x PER on its FY14 earnings.

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

Source: Kenanga