KIMLUN has secured two building jobs with a combined value of RM94.5m in Johor, bringing its YTD job wins to RM360m (vs. our full-year assumption of RM1.1b) and its outstanding order book to RM2b (vs. a peak of RM2.4b during the last upcycle in FY17). We maintain our forecasts, TP of RM1.12 and OUTPERFORM call.

Two new jobs. KIMLUN has bagged two new jobs in Johor worth RM94.5m from Horizon Hills Development S/B to construct: (i) 78 units of shop lots, and (ii) a shopping mall. These projects are slated for completion by 2QCY25.

We are positive on the new contracts which have increased its YTD job wins to RM360m (vs. our full-year assumption of RM1.1b) and boosted its outstanding order book by 5% to RM2b (inching closer to the peak of RM2.4b during the last upcycle in FY17). We estimate that the contracts will fetch a gross profit margin of 7-9%.

For the rest of the year, we maintain the view that public contracts would see an expedited rollout in 2HCY24 post reviews. We believe KIMLUN stands to benefit from certain key infrastructure projects i.e. (i) Pan Borneo project, (ii) Sarawak Autonomous Rapid Transit, (iii) Johor Bahru – Singapore RTS project, and (iv) MRT3.

Forecasts. Maintained.

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 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 RM2.0b 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 - 11 May 2023