Yesterday, KIMLUN announced that their 40% JV company – JBB KIMLUN S/B has secured a RM263m project from Astata Padu S/B for the construction of one block of office complex in Mukim of Plentong, Johor, slated for completion in Oct 2019. We are NEUTRAL on the contract as it is within our FY17E construction replenishment target of RM1.0b. Maintain our FY17-18E earnings forecasts and reiterate our MP call with unchanged TP of RM2.27.

New office complex job! Yesterday, KIMLUN announced that their 40% JV company – JBB KIMLUN S/B has secured a RM263m project from Astata Padu S/B for the construction of one block of office complex for the Majlis Bandaraya of Johor Bahru in Mukim of Plentong, Johor, slated for completion in Oct 2019.

Neutral on the contract. We are neutral on the win as KIMLUN’s 40% effective share on the contract at RM105m is well within our FY17E construction replenishment target of RM1.0b; making up 10% of our target with a remainder of RM895m to be achieved in FY17. Assuming PBT margins of 8%, the contract is expected to contribute RM2.5m to bottom-line per annum.

Company outlook. Post award, KIMLUN’s outstanding order-book currently stands at RM2.0b (Construction: RM1.75b; Manufacturing: RM0.25b) providing visibility for the next two years. For KIMLUN’s construction segment, we are expecting KIMLUN to secure more jobs within the affordable homes segment given their position as an IBS pioneer which provides competitive edge within the space as IBS allows for speedier construction with less labour requirements. As for their manufacturing arm, we are expecting lower revenue for the year due to the timing gap between the end of on-going projects (SG Thomson line) and the delivery of MRT2’s packages in 4Q17. In the pipeline are potential Singapore manufacturing packages i.e. DTSS 2, MRT Circle line 6 and North South Corridor Expressway to be awarded later in the year.

Earnings unchanged. Post award, we maintain our FY17-18E earnings forecasts of RM70.7m-RM79.3m on the back of FY17E construction replenishment of RM1.0b and manufacturing replenishment of RM0.35b.

Maintain MARKET PERFORM. We maintain our MP call with an unchanged TP of RM2.27 based on 9.0x FY18E PER. We believe our valuation of 9.0x is fair despite being at the lower end of our targeted small-mid cap range of 9-13x given that its PAT margin of 7% is relatively weaker against peers’ (HSL, KERJAYA, MITRA) average margins of c.10%.

Source: Kenanga Research - 9 May 2017