KIMLUN?s 1Q17 CNP of RM14.2m is within our and consensus expectations at 20%. No dividends declared as expected. Maintain FY17-18E earnings forecasts. Maintain MP with unchanged TP of RM2.27 based on applied 9.0x FY18E PER.

Within expectations. KIMLUN?s 1Q17 CNP of RM14.2m was within our and consensus expectations at 20%. We derive our CNP after reversing out unrealized FOREX gains of c.RM1.2m. No dividends were declared, as expected.

Results highlight. 1Q17 CNP was down 41% QoQ on the back of a lower revenue (-28%) from slower billings from construction (- 27%) and manufacturing (-36%). The slower construction billings were due to jobs secured in FY16 being in their early stages and yet to reach advanced billings stage while the weaker manufacturing revenue was due to completion of TLS orders from Singapore in FY16 pending the supply of KVMRT2 SBG packages, expected to pick up from 2H17 onwards. 1Q17 CNP was down 30% YoY from weaker revenue (-28%) on similar reasons stated above.

Construction outlook. YTD, KIMLUN has secured RM105m worth of contracts accounting for 10% of our RM1.0b construction replenishment target. We believe our replenishment target is achievable backed by affordable housing projects given their pioneer status as an IBS player which allows for speedier construction and less labour requirements. Current outstanding construction order-book stood at RM1.59b providing visibility for the next 2.0 years. Meanwhile, we expect construction works from Pan Borneo, which makes up c.30% of their outstanding order- book to pick up at a quicker pace from 2H17.

Manufacturing outlook. YTD, KIMLUN has secured c.RM90m of manufacturing orders making up 30% of our RM300m targeted replenishment. Replenishment target to be backed by potential Singapore manufacturing packages, i.e. DTSS 2, MRT Circle line 6 and North South Corridor Expressway to be awarded later in the year. Current outstanding manufacturing order-book stands at RM0.33b providing visibility for c.2 years.

Maintain earnings. We make no changes to our FY17-18E earnings forecasts.

Maintain our MP call with an unchanged TP of RM2.27 based on applied 9.0x FY18 PER. While KIMLUN?s applied valuation is at the lower end of our targeted small-mid cap peers? range of 9.0x- 13.0x, we believe it is justifiable as their average Fwd. FY17-18E PAT margin of c.7% remains weaker compared to average peers? (KERJAYA, HSL, MITRA) margins of c.10%.

Risks to our call include: (i) lower-than-expected margins from Pan Borneo and KVMRT2 manufacturing sales orders, (ii) lower- than-expected construction billings, and (iii) lower-than-expected replenishment rates.

Source: Kenanga Research - 31 May 2017