KIMLUN’s FY22 results beat expectations due to a tax deduction in the fourth quarter. Job win prospects in FY23 are promising backed by a new wave of public infrastructure projects while earnings visibility is robust, backed by RM1.7b outstanding order book. We keep our FY23F earnings, TP of RM1.12 and OUTPERFORM call.

Above expectations. FY22 core net profit of RM37m (after adjusting for RM44m impairments) beat our forecast and consensus estimate by 37% and 46%, respectively. The variance against our forecast came largely from tax deduction arising from RM44m tax-deductible impairments in the fourth quarter.

FY22 revenue rose 9% YoY as its on-going construction projects move up the S-curve while the previous period was also affected by the pandemic. Thereafter, core net profit returned to the black on better gross profit margin (+4ppts) thanks to better absorption of fixed costs (such as depreciation and labour).

FY22 new job wins worth RM460m (comprising RM280m for construction and RM180m for manufacturing) came within our full-year replenishment assumption of RM500m. Moving forward, FY23 replenishment prospects is promising underpinned by: (i) Pan Borneo project, (ii) Sarawak Autonomous Rapid Transit, (iii) Johor Bahru – Singapore RTS project, and (iv) MRT3. In view of the improved outlook, we assume job wins of RM1.1b in FY23, slightly higher than the company’s own internal target of RM680m-RM830m.

As of FY22, its outstanding order-book stood at RM1.7b (construction: c.RM1.37b; precast concrete products: RM0.35b), which is fairly close to the peak of RM2.4b during the last upcycle in FY17.

Forecasts. We maintain our FY23F earnings and introduce our FY24F numbers.

We also keep our TP of RM1.12 based on 9x PER, at a 50% discount to the 18x we ascribed to market leader GAMUDA given KIMLUN’s much smaller size. There is no adjustment to our TP based on ESG given a 3-star ESG rating as appraised by us (see Page 4).

We like KIMLUN for: (i) being a beneficiary from the continuation of public infra project rollouts, (ii) its geographically diversified earnings base with a strong presence in the precast concrete product segment in Singapore, and (iii) its strong earnings visibility backed by an outstanding order-book of RM1.7b which could keep it busy for the next two years. Maintain OUTPERFORM.

Risks to our call include: (i) sustained weak flows of construction jobs from both public and private sectors, (ii) project cost overrun and liabilities arising from liquidated ascertained damages (LAD), and (iii) rising cost of building materials.

Source: Kenanga Research - 1 Mar 2023