News   Last Friday, Kimlun announced that they have bagged a RM70.5m contract in Johor Bahru from Bukit Indah (Johor) Sdn. Bhd, a wholly owned subsidiary of SP Setia Bhd for the construction of apartments and ancillary buildings with the completion expected by October 2015.

Comments    Kimlun’s year-to-date orderbook replenishment of c.RM1.07b has exceeded our FY13 assumptions of RM500m by a long shot but is still within our FY14 assumptions of RM900m. As a result, we are neutral on the win which will only has an impact on earnings beginning of 2014, as the contract was only awarded in 4Q13.

Assuming a conservative 7% pre-tax margin, the project could possibly contribute RM3.7m to Kimlun’s bottom line which is largely within our assumptions.

Outlook   With this contract, Kimlun’s total outstanding orderbook has increased from RM1.7b to the c.RM2.0b mark (construction: RM1.67b, manufacturing: RM400m), enough to last for two years.

As for the HYVE, Kimlun’s property project in Cyberjaya we are expecting some positive contribution in 2H14.

All-in, despite the rosy outstanding orderbook of c.RM2.0b, 2013 remains challenging for Kimlun given that higher operating cost remains a concern due to the recent subsidy rationalization coupled with the shortage of foreign labor and high fixed costs (financing and depreciation) which could margins.

Forecast   No changes to our earnings forecasts.

Rating   Maintain MARKET PERFORM

Valuation  We are keeping our TP of RM1.93 based on an unchanged 9x FY14 PER.

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

Source: Kenanga