1QFY21 CNP of RM9.1m is deemed below expectation due to our overly optimistic recovery projection. With the numerous lockdowns imposed which would reduce productivity, we also foresee slower roll-out for public projects for the remainder of FY21. Hence, we reduce FY21E replenishment by 20% to RM600m (from RM750m). Consequently, FY21E/FY22E earnings are cut by 44%/20% and TP lowered to RM1.30 (from RM1.45) after rolling valuation base year forward. However, OP is maintained in anticipation of a strong rebound post vaccination efforts.

Below expectations. 1QFY21 CNP of RM9.1m (-25% QoQ, +30% YoY) accounted for 19%/22% of our/consensus full-year estimates. We deem results as below expectation due to our overly optimistic recovery projection which has been upended by the strong resurgence of Covid- 19 cases which has brought about harsher lockdowns in Malaysia and Singapore* – limiting overall group productivity. No dividends as expected as dividends are normally dished out in the fourth quarter.

*Malaysia’s imposed MCO 3.0 from May 12th to June 7th 2021 (limiting workforce to 60%) and most recently announced a total lockdown from June 1st to June 14th. Meanwhile, Singapore entered lockdown from May 16th to June 13th 2021.

Highlights. 1QFY21 CNP of RM9.1m declined 25% QoQ mainly due to weaker revenue at its construction division (-19%) on lower outstanding order-book carried over (of RM1.4b at start of 1QFY21 vs. RM1.54b at start of 4QFY20) as well as lower margin (-1ppt). 1QFY21 CNP surged 30% YoY despite the lower revenue registered (-14%) mainly due to the stronger margin from its manufacturing division (+9ppt) attributable to better-margin projects from Singapore.

Outlook. For the remainder of the year, due to the elevated Covid-19 cases, we foresee public project roll-outs to be pushed back. Hence, we reduce our FY21E replenishment by 20% to RM600m (construction RM350m; manufacturing RM250m) from RM750m (construction RM500m; manufacturing RM250m). YTD, Kimlun has replenished RM36m (construction RM3.3; manufacturing RM32.5m) worth of jobs.

Pain before gain. However, we keep FY22E replenishment unchanged at RM750m as we believe FY22 will be a year where contract roll-outs will see a strong rebound once vaccination efforts and the harsh lockdowns bear fruits.

Key replenishment prospects are seen from: (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 RM1.2b (construction: RM0.9b, manufacturing: RM0.3b) providing slightly over 1.0x revenue cover.

Reduce FY21E/FY22E earnings by 44%/20% after lowering: (i) progress billings in FY21 on reduced productivity due to the multiple lockdowns and (ii) FY21E replenishment by 20% to RM600m from RM750m.

Maintain OUTPERFORM on a lower TP of RM1.30 (from RM1.45)  after rolling valuation base year forward based on unchanged 10x PER. Despite the short-term uncertainties, we continue to like the name for its potential sharp turn-around from a small earnings base. Also, its shares currently trading FY22E PER of 6.9x are attractive given that it is also a name which offers exposure to the rising construction activity in Singapore.

Source: Kenanga Research - 31 May 2021