9MFY21 CNP of RM3.3m missed expectations due to the unexpected loss incurred in 3QFY21 arising from the FMCO. That said, with the recommencement of construction works on a normalised basis, we expect a sharp rebound in the quarters ahead. YTD replenishment of RM1b is within our RM1.1b target. Post results, we reduce FY21E earnings by 47% but maintain OP with an unchanged TP of RM1.25 pegged to 9x Fwd. PER.

Unexpected loss this quarter. 3QFY21 core net loss of RM8.1m dragged 9MFY21 CNP to RM3.3m – below our/consensus estimates at 12%/13% of full-year forecast, respectively. The negative deviation stemmed from the lower-than-expected revenue recognised this quarter which dragged the group into a loss given the fixed operating costs incurred. The weak revenue was attributable to FMCO restrictions (of 1.5 months in the quarter) and reduced productivity as its workers were not all fully vaccinated. No dividends as expected as dividends are normally dished out in the fourth quarter.

Highlights. QoQ, 3QFY21 slipped into the red posting CNL of RM8.1m on weaker revenue (-50%) due to lower works done during the quarter attributable to the FMCO which capped productivity as explained above. YoY, 9MFY21 CNP of RM3.3m was almost similar to 9MFY20 CNP of RM3.2m on slightly reduced revenue (-4%).

Outlook. YTD, Kimlun has replenished RM1b worth of contracts (construction RM900m; manufacturing RM100m) within our target of RM1.1b. In the near future, replenishment prospects include: (i) RTS, (ii) Pan Borneo Sarawak Phase 2, (iii) Autonomous Rail Transit Kuching, (iv) Iskandar BRT, and (v) Central Spine Road. Outstanding order-book stands at RM2b – providing c.2x revenue cover.

Reduce FY21E earnings by 47% after lowering revenue assumption and catering for the loss incurred this quarter. Nonetheless, FY22E CNP kept unchanged post results.

Despite the weak 3QFY21, we maintain OUTPERFORM with unchanged TP of RM1.25 pegged to 9x FY22E PER. The recovery prospect for Kimlun has strengthened since the recommencement of construction works nation-wide and we continue to like the name for its potential sharp earnings turn-around from a small base. Also, FY22E PER of 5.8x is attractive given that it offers exposure to MRT3 (through the supply of TLS and SBGs) and Singapore which is seeing rising construction activity.

Source: Kenanga Research - 30 Nov 2021