Kimlun has secured a RM780m contract for the construction and maintenance of Sarawak Sabah Link Road (Phase 1). Positive on the win which brought YTD book order replenishment to RM1.0bn – surpassing our target of RM600m. Upgrade FY22E earnings by 7% after increasing our FY21E replenishment target to RM1.1bn (from RM600m) after imputing this surprise win. BUY with higher TP of RM1.25 on 9x FY22E PER. We continue to like Kimlun for its potential sharp earnings turn-around from a low base. Also, FY22E PER of 6.4x is attractive given that it is a name which offers exposure to MRT3 and Singapore which is seeing rising construction activity.

Kimlun has secured a RM780m contract from Samling Resources to provide construction and maintenance for the Sarawak Sabah Link Road (Phase 1) from Lawas to Long Lopeng (77km). The contract will span 43 months till June 2025.

We are positively surprised by this new win as it brings YTD order-book replenishment to RM1bn – surpassing our target as well as managements guidance.

We were targeting for RM600m worth of replenishments for FY21 (RM350m for construction and RM250m for manufacturing) while management had guided for RM650m RM680m worth of replenishments (RM500m for construction and RM150-180m for manufacturing) since the beginning of the year. That said, we expect margins for this contract to be slim at c.6% (gross) – similar to what the group has been reporting in recent quarters, attributable to highly competitive tenders.

Looking ahead, replenishment prospects for the group lies in: (i) RTS, (ii) Pan Borneo Sarawak Phase 2, (iii) Autonomous Rail Transit Kuching, (iv) Iskandar BRT, and (v) Central Spine Road. Outstanding order-book post contract win stands at RM2.0bn – providing c.2.0x revenue cover.

Source: Rakuten Research - 18 Nov 2021