KIMLUN has bagged its first key construction job in FY24, namely, a RM133.6m building job in Johor, boosting its outstanding order book to RM1.99b, which will keep it busy for the next 2-3 years. We maintain our forecasts, TP of RM0.83 and MARKET PERFORM call.

KIMLUN has secured a building contract worth RM133.6m from SUNWAY’s (OP; TP: RM2.27) unit Sunway Parkview Sdn Bhd for main building works for houses, ancillary buildings and amenities in its development in Johor Bahru, Johor. The contract is due for completion in 3QCY26.

We are positive on this first contract win for KIMLUN in FY24 (vs. our full-year FY24 job win assumption of RM1.0b), which has boosted its construction outstanding order book by 7% to RM1.99b (inching closer to its peak order book of RM2.4b seen during the last upcycle in FY17). We estimate that the contract will fetch a gross profit margin of 7% to 9%.

Outlook. We expect a brighter outlook for KIMLUN in FY24 backed by the roll-out of public infrastructure projects. We understand that KIMLUN is eyeing work packages and pre-cast concrete product orders from: (i) Pan Borneo phase 2, (ii) Johor Bahru – Singapore RTS project, (iii) flood mitigation projects, (iv) Singapore Cross Island Line, (v) semiconductor factories, and (vi) MRT3.

Forecasts. Maintained.

Valuations. We also keep our TP of RM0.83 based on 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).

Investment case. We like KIMLUN as: (i) it is a beneficiary of the rollout 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 RM1.99b which will keep it busy for the next 2-3 years. However, its valuations are rich after the recent run-up in its share price. Maintain MARKET PERFORM.

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 - 2 Feb 2024