KIMLUN’s 1QFY24 results met expectations. It barely broke even in 1QFY24 as its new construction projects were still at early stages of execution. Nonetheless, it is poised to benefit from a new wave of public infrastructure projects. We maintain our forecasts, TP of RM1.47 and our MARKET PERFORM rating.

KIMLUN’s 1QFY24 net profit only made up 1% of both our full-year forecast and the full-year consensus estimate. However, we consider the results within expectations as we expect strong results in coming quarters. No dividend was declared as expected as it usually only pays a final dividend.

YoY, its 1QFY24 revenue grew 18% largely driven by the acceleration of construction progress of the Sarawak Sabah Link Road but lower property revenue was recorded as its on-going project reached tail-end.

However, its core net profit was flattish at RM0.5m (vs. RM0.4m a year ago) on higher administrative and finance costs.

QoQ, its 1QFY24 revenue declined 22% as 1Q is typically a slow quarter for construction activities on the back of the long Chinese New Year break. Its net profit plunged 92%, similarly, on the back of higher administrative and finance costs.

Outlook. As at Mar 2024, its construction outstanding order book stood at RM2.26b (from RM1.9b three month ago) while that of manufacturing unit stood at RM370m (from RM300m previously). Moving forward, we project 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) flood mitigation projects, (iii) semiconductor factories, and (iv) MRT3.

Forecasts. Maintained.

Valuations. We also maintain our TP of RM1.47 based on 10x FY25F 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 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 is backed by a construction outstanding order book of RM2.26b 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 - 31 May 2024