News

Yesterday, KIMLUN announced that they have been appointed as a designated supplier of segmental box girders (SBG) to certain packages in the MRT 2 SSP line in a contract worth RM200m which is expected to last 44 months.

Comments

We were not entirely surprised by the contract award as KIMLUN used to supply SBG for KVMRT 1. However, the contract amount of RM200m surpassed our FY16E manufacturing replenishment target of RM120m by 67%. Hence, we increase our FY16E manufacturing orderbook target to RM300m with a remaining of RM100m to be achieved in FY16.

Correspondingly, we raise our total FY16E orderbook replenishment target, which comprises manufacturing and construction target to RM1.44b (previously RM1.26b).

Assuming PBT margins of 8%, the contract is expected to contribute an average of RM2.4m to bottomline per annum.

Outlook

KIMLUN’s outstanding orderbook stands at RM1.97b (Construction 1.60b; Manufacturing 0.37b) providing earnings visibility for 2 years.

KIMLUN’s prospects remain bright underpinned by a RM2.0b construction tenderbook from affordable housing and infrastructure projects while their manufacturing arm targets tunnel lining segments (TLS) supplies for the Singapore MRT (Eastern Region Line) and Deep Tunnel Sewerage project (Phase 2). We also expect their industrial building systems (IBS) division to greatly benefit from the increase in affordable housing projects in line with the 11MP.

Forecast

While we increase our FY16 manufacturing replenishment target to RM300m, we note that there are no changes to earnings as we have a shorter recognition period for our initial replenishment assumption, i.e. 24 months as compared to 44 months for the MRT 2 SBG supply contract.

Rating

Maintain OUTPERFORM

Valuation

KIMLUN has been our Top Pick since our 4QCY15 Strategy report (5/10/15) and we reiterate our positive stance on the company with an unchanged TP of RM2.10 based on FY16E PER of 9.0x, which is inline with its peers’ range of 7.0x-12.0x.

We like KIMLUN for their potential orderbook growth and their presence as an established IBS player in the market.

Risks to Our Call

Below-than-expected margins

Delay in construction works

Lower-than-expected orderbook replenishment

Source: Kenanga Research - 30 Mar 2016