Post a briefing; we are further convinced that FY22 would be a year backed by strong replenishment prospects from both its precast and construction arms. While management is only guiding FY22 replenishment of RM600-840m; we note that management is typically conservative, and think there is room for upside surprises given the number of key mega projects they are aiming for. Its property division which has been lying low for the past few years is also expected to see a ramp-up in launches and higher contributions moving forward. With an appealing FY22E PER of 5.8x, we continue to maintain OP with unchanged TP of RM1.25.

Replenishment within revised targets. YTD, Kimlun has replenished RM1.162b worth of contracts (construction RM1b; precast manufacturing RM0.162b) in line with our RM1.1b revised target. Note, Kimlun has surpassed initial replenishment targets back in Nov 2021 when they won the Sabah Sarawak Link Road contract worth RM780m. Prior to that contract, we were aiming for only RM600m worth of replenishments while management only guided for RM650-680m at the start of the year. Currently, Kimlun’s outstanding order-book stands at c.RM2b (construction c.RM1.7b; precast c.RM0.3b) – close to its peak levels of RM2.4b in FY17.

FY22 new guidance. Management guides FY22 replenishment of RM600- 840m (construction at RM500-700m and precast at RM100-140m) – in line with our existing FY22 target of RM800m.

Construction has a robust replenishment pipeline. Kimlun’s replenishment prospect for FY22 is bright, led by key mega projects from RTS, Pan Borneo Phase 2, Autonomous Rail Transit, Iskandar BRT and Central Spine Road. There could be room for upside surprises if Kimlun manages to secure more than two of the said projects. That said; we expect competition to be tight (i.e. lower GP margins of 6-7%) given the lull in projects over the past two years during the pandemic.

Precast segment to remain busy. While MRT2 and LRT3 SBG/TLS orders are approaching their tail-end, management guides that its precast division utilisation rate remains high backed by outstanding order-book of RM0.3b which would last them a solid six months. Management continues to remain optimistic in securing orders from Singapore’s Jurong Region MRT line which already has its main construction packages being dished out. The precast packages will be tendered out by the winning main contractor once the design of the line is finalised. Meanwhile, management also allude that they have a strong chance of securing the RTS precast packages as many main contractors bidding for the construction portion have seek them out to quote for the precast portions.

Property division contributions to pick up. Kimlun has scheduled three launches with total GDV of RM200-300m in FY22 namely: (1) Bukit Bayu Bungalows Phase 2A (16 units) at RM37m GDV, (2) Bukit Bayu Bungalows Phase 2B (23 units) at RM50m GDV and (3) commercial development at Seri Alam (Kimlun owns 69.5% stake – tentative GDV of RM200m assuming land/GDV of 20%). In comparison, FY20 and FY21 only had launches worth RM60m/annum. Currently, Kimlun is still pending land sale completion of its 49%-owned Alam Damai land (Cheras) which will likely see launch commence in FY23 (GDV of c.RM600m assuming 15% land/GDV).

Keep our FY21/22E earnings unchanged and maintain OUTPERFORM with unchanged TP of RM1.25 pegged to 9x FY22E PER. 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 - 13 Dec 2021