KIMLUN has secured a new contract worth RM164m from Sunway Iskandar Sdn Bhd. BUY with a TP of RM 1.60 based on FY19E PER of 8.0x which is within the range applied on our small-mid cap players between 7-12x. Its healthy outstanding orderbook of c.RM2.3b will be able to help them weather through challenging times. We are keeping our recommendation and TP for now as we are looking to review our valuation for the entire construction sector post Budget 2019 with a downside bias given tougher times in terms of orderbook replenishments.

KIMLUN announced that they have secured a contract from Sunway Iskandar Sdn Bhd worth RM164.0m. The contract is for the main building works for 1 block of commercial building and 1 block of apartments at Medini Iskandar, Johor and is expected to complete by end ofJune 2021. We remain NEUTRAL on this as KIMLUN's YTD contract replenishments of RM440m (YTD construction replenishment of RM360m; manufacturing RM80m) are still within our FY18E targeted replenishment of RM570m (Construction target: RM450m; Manufacturing target: RM120m).

Assuming a PBT margin of 8%, the project is expected to contribute c.RM3.2m to KIMLUN's bottom-line per annum over the next 3 years. We believe the contract win highlights KIMLUN's ability to secure projects amidst an increasingly competitive environment. While outlook of securing major infrastructure projects remains lacklustre, we believe the near-to-mid-term outlook for KIMLUN is buoyed by affordable housing projects.

Given KIMLUN's pioneer status as an industrial building system (IBS) manufacturer coupled with their vast experience for building affordable homes. Currently, KIMLUN's outstanding orderbook stands at c.RM2.3b (construction RM 1.9b; manufacturing RM0.4b) providing 2-year visibility.

Source: Rakuten Research - 31 Oct 2018