KIMLUN has bagged two building jobs from ECOWLD worth a total of RM140.2m, boosting its YTD construction job wins to RM880m and outstanding order book to RM1.96b, which will keep it busy for the next 2-3 years. While maintaining our forecasts and TP of RM0.91, we upgrade our call to OUTPERFORM from MARKET PERFORM as value has emerged after the recent weakness in its share price.

KIMLUN has secured two contracts worth a total of RM140.2m in Johor from ECOWLD (MP; TP: RM1.03) as follows:

i. design and build for one service apartment block and amenities,

with completion in Apr 2026; and,

ii. construction of 148 units of link-houses and ancillary buildings, with completion in Apr 2025.

We are positive on these latest contracts, which have increased its YTD job wins to RM880m (vs. our full-year assumption of RM1.1b) and boosted its construction outstanding order book by 8% to RM1.96b (inching closer to its peak order book of RM2.4b seen during the last up-cycle in FY17). We estimate that the contracts will fetch a gross profit margin of 7%-9%.

For the rest of the year, we maintain our view that the roll-out of public contracts will be expedited. We believe KIMLUN will garner a slice of action in public infrastructure projects such as: (i) Phase 2 of Pan Borneo Highway Sarawak, (ii) flood mitigation projects, (iii) Johor Bahru – Singapore Rapid Transit System (RTS), and (iv) MRT3.

Forecasts. Maintained.

We also keep our TP of RM0.91 based on unchanged 10x PER, at a discount to 18x we ascribed to mid-sized to large contractors 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). However, we upgrade our call to OUTPERFORM from MARKET PERFORM as value has emerged after the recent weakness in its share price.

We like KIMLUN as: (i) it is a beneficiary of the roll-out of public infrastructure projects, (ii) it capitalises on the stable public infrastructure sector in Singapore with its precast concrete products manufactured in Johor, and (iii) its strong earnings visibility backed by an outstanding order book of RM1.96b which will keep it busy for the next 2-3 years.

Risks to our call include: (i) delays in the roll-out of public infrastructure projects, (ii) liquidated ascertained damages (LAD) arising from cost overrun and delays, (iii) rising cost of building materials; and (iv) labour shortages.

Source: Kenanga Research - 3 Oct 2023