On higher-than-expected manufacturing contributions, Kimlun performed strongly in 4QFY20 and registered a CNP of RM12.1m, lifting FY20 CNP to RM15.3m – way above our and consensus forecasts. Dividend of 1.0 sen was also above. Recovery prospects are gaining traction in anticipation of more contract rollouts after a quiet 2020. On higher FY21E earnings (+11%), we upgrade the TP to RM1.45 (from RM1.30) and reiterate OP.

Way above expectations. 4QFY20 CNP of RM12.1m* (+97% QoQ, - 28% YoY) lifted FY20 CNP to RM15.3m (-73% YoY) – way above ours/consensus expectations, accounting for 188%/132% of full-year estimate, respectively. The positive deviation mainly stemmed from substantially stronger margins in their manufacturing (Precast) division which boosted contributions. The declared dividend of 1.0 sen also exceeded our 0.5 sen estimate.

*We derive our CNP after reversing out RM7.3m of land impairment in Johor.

Highlights. 4QFY20 CNP of RM12.1m leapt 97% QoQ mainly due to strong performance of its manufacturing division which registered stronger gross profit (+136%) on higher revenue (+84%) and margin (+6ppt). The strong margin was attributable to higher sales contribution from Singapore projects which derive higher margins. YoY, full year CNP slumped 73% due to Covid-19 impact.

FY20 contract replenishment met our target. For FY20. Kimlun recorded RM694m of replenishments (construction: RM464m, manufacturing: RM230m), within our RM750m target (construction: RM500m, manufacturing: RM250m).

Outlook. For FY21, management is guiding RM650-680m of replenishment (construction: RM500m, manufacturing: RM150m - RM180m), slightly lower against our target of RM750m (construction: RM500m, manufacturing: RM250m). That said, we keep our target unchanged as we think management is a tad conservative on their manufacturing precast prospects, given that Singapore’s construction demand is expected to grow c.10%-30% from a low base in 2020.

Key replenishment prospects are seen in the followings: (i) RTS, (ii) Pan Borneo Sarawak Phase 2, (iii) Autonomous Rail Transit Kuching, (iv) Iskandar BRT, and (v) Central Spine Road. Outstanding order-book stood at RM1.4b (construction: RM1.1b, manufacturing: RM0.3b) providing over 1.0x revenue cover.

Increase FY21 earnings higher by 11% to RM49m after imputing in higher manufacturing margins. Meanwhile, introduce FY22E CNP of RM55m backed by construction and manufacturing replenishment of RM600m and RM200m, respectively.

Maintain OUTPERFORM with a higher TP of RM1.45 (from RM1.30) based on unchanged 10x FY21E PER. We continue to like the name for its sharp turnaround off a small earnings base and all-round exposure to either big infra projects or smaller scale affordable housing. Also, the current FY21E PER of 6.2x is attractive given that it is also a name which offers exposure to the rising construction activity in Singapore.

Source: Kenanga Research - 29 Mar 2021