KIMLUN, via a 49:51 JV with a unit of SGX-listed Astaka Holdings Ltd (Astaka), is developing a RM600m premium serviced apartment project in Johor Bahru. We are positive on the latest venture which will contribute to KIMLUN’s construction and property profits. We maintain our forecasts but raise our TP by 3% to RM1.81 (from RM1.76). Maintain OUTPERFORM.

KIMLUN, via a 49:51 JV with Astaka Capital Sdn Bhd, a 50.99%-owned unit of Astaka, is developing a RM600m premium serviced apartment project called Arden @ One Bukit Senyum on a 1.662-acre land near customs, immigration and quarantine (CIQ) and Johor Bahru-Singapore rapid transit system (RTS) terminal in Johor Bahru. The JV will acquire the land from Astaka for RM61.5m or RM77 psf. KIMLUN will fork out RM0.49m for the 49% stake. It will be appointed the project’s main contractor while Astaka will be in charge of project management, sales and marketing.

Arden @ One Bukit Senyum, Phase 3 of One Bukit Senyum, will comprise 600 units of premium serviced residence with a built-up area ranging from 750 sq ft to 1,650 sq ft with a price tag of RM1,300 to RM1,500 per sq ft (psf). The project will be launched in 4QCY24 with completion within 48 months.

At RM77 psf, we believe the land price is fair based on asking prices of RM55 to RM85 psf in the surrounding areas.

We are positive on the latest venture which will contribute to KIMLUN’s construction profits (via building works worth c.RM300m) and property earnings.

Forecasts. Maintained as the project’s earnings will come in beyond our forecast period.

Valuations. However, we raise our TP by 3% to RM1.81 (from RM1.76), having reflected enhancement from the property JV project. We continue to value KIMLUN’s construction business at 12x FY25F PER, at a discount to the 20x 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 RM2.64b 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 OUTPERFORM.

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

Source: Kenanga Research - 15 Jul 2024