FY21 CNL of RM0.6m missed expectations due to the lack of job continuity which saw the group registering lower-than- expected revenue which was insufficient to cover fixed costs translating to weaker margins. Nonetheless, a 1.0 sen dividend declared was inline. Targeting FY22E replenishment of RM800m. Outstanding book remains healthy at RM2.1b (2x cover). Reduce FY22E earnings by 19% as we defer revenue recognition of new jobs secured. 1QFY22 could remain weak as ramping up of its sizeable new job (RM780m Sarawak Sabah Link Road) will only pick up from the 2Q. Maintain OP on lowered TP of RM1.00 (from RM1.25) pegged to 9x PER.

Below expectations. 4QFY21 core net loss of RM3.9m dragged FY21 into a marginal loss of RM0.6m – below our/consensus profit estimate of RM14m. The underperformance stemmed from the lower-than- expected revenue recognised this quarter which led to weaker-than- expected margins as revenue was insufficient to cover the fixed operating costs. Nonetheless, the 1.0 sen dividend declared is in line our 0.9 sen estimate.

Unexpected loss. This quarter’s loss came as a surprise as we had anticipated the group to see a ramp-up in works (and consequently revenue) given easing of lockdown measures in 4QFY21. Nonetheless, management explained that the ramp up was not as quick-as-expected given that most ongoing projects were towards tail-end of works while the sizeable new job secured in Nov 2021 was in mobilisation stage (i.e. RM780m Sabah Sarawak Link Road package). The group found itself under such circumstance mainly due to the lack of job continuity attributable to a lull in contract replenishment throughout FY21 whereby the bulk of its replenishment were only secured towards the year-end. Note, at the start of 4QFY21, outstanding order-book was also at a 5- year low of RM1.08b, split between construction (RM0.78b) and manufacturing (RM0.3b).

Highlights. In the absence of lockdown unlike the previous quarter, 4QFY21 CNL of RM3.9m narrowed against 3QFY21 CNL of RM8.1m on the back of higher revenue (+49%). YoY, FY21 CNL of RM0.6m sank into the red from a CNP of RM15.3m recorded in FY20 mainly due to lower revenue (-13%) as the quantum of orderbook left to be executed at the start of FY21 was lower at RM1.4b vs RM1.54b at the start of FY20.

Outlook. In FY21, Kimlun has replenished RM1.162b worth of contracts (construction - RM1b; manufacturing - RM162m) within our target of RM1.1b. For FY22, we are expecting RM800m of new jobs (management guides for RM600m-RM800m). Replenishment prospects include: (i) RTS, (ii) Pan Borneo Sarawak Phase 2, (iii) Autonomous Rail Transit Kuching, (iv) Iskandar BRT, and (v) Central Spine Road. Note that there could be room for upside surprises if Kimlun manages to secure more than two of the said prospects. As of Dec 2021, outstanding order-book stands at RM2.1b (construction - c.RM1.7b; precast - RM0.4b) – close to its peak level of RM2.4b in FY17.

Reduce FY22E earnings by 19% after lowering revenue assumption as we expect 1QFY22 to remain weak given that their RM780m Sabah Sarawak Link road is still undergoing mobilization and will only see a ramp-up starting from 2QFY22. Introduce FY23E CNP of RM46.1m (+21% YoY).

Keep OP with lowered TP of RM1.00 (from 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, FY23E PER of 5.9x is attractive given that it is a name which offers exposure to MRT3 (through the supply of TLS and SBGs) and Singapore which is seeing rising construction activity

Source: Kenanga Research - 28 Feb 2022