KIMLUN announced that they have bagged a building project worth RM214.8m for the construction of for 2 blocks of condominiums and ancillary buildings at Mukim Petaling, Selangor. We are NEUTRAL on the award as YTD wins of RM815m are still within our FY17E replenishment target of RM1.0b. No change to our earnings estimates. Maintain MP with an unchanged TP of RM2.27.

New building project. Last Friday, KIMLUN announced that they secured a building project worth RM214.8m from Hillcrest Gardens S/B. The project comprises construction works for 2 blocks of condominiums and ancillary buildings at Mukim Petaling, Selangor slated for delivery in June 2020 (33 months).

NEUTRAL on contract. We remain NEUTRAL on this contract given that YTD construction wins of RM815m is still within our FY17E replenishment target of RM1.0b ? accounting for 82% with a remainder of RM185m to be achieved. Assuming pre-tax margin assumption of 8%, the contract will contribute c.RM4.7m to KIMLUN?s bottom- line/annum.

Construction outlook. For the remainder of FY17, we believe our FY17E replenishment target of RM1.0b 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 stands at c.RM2.1b 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 only pick up at quicker pace from 2H18.

Manufacturing outlook. YTD, KIMLUN has secured c.RM90m of manufacturing orders making up 30% of our RM300m targeted replenishment. Replenishment target is backed by potential Singapore manufacturing packages, i.e. DTSS 2, MRT Circle line 6 and North South Corridor Expressway to be awarded within 4Q17. Current outstanding manufacturing order-book stands at RM0.33b providing visibility for c.2 years.

Maintain earnings. Post award, we make no changes to our FY17-18E earnings forecasts.

Maintain our MARKET PERFORM 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.9%. Although KIMLUN?s earnings outlook remains stable, catalysts are lacking.

Source: Kenanga Research - 18 Sep 2017