KIMLUN has clinched its sixth key contract win in FY24 with a RM128.5m design-and-build contract to upgrade the Senai-Desaru Expressway in Johor. With this contract, its YTD contract wins have surpassed our FY14 target of RM900m at RM917.5m. Its current outstanding order book of RM3.41b has also exceeded its previous peak of RM2.4b in FY17, positioning for significant impacts in FY25 and beyond. We reiterate OUTPERFORM rating with a TP of RM1.69.

Contract for Senai-Desaru Expressway upgrade. Last Friday, KIMLUN announced that it has secured the RM128.5m design-and-build contract to upgrade the stretch of the Senai-Desaru Expressway from Jambatan Kg Johor (KM49.3) to Sg Semenchu (KM58.7). The construction work is scheduled for completion by 2QCY27.

Sixth key contract win in FY24. We view this contract win positively, as it raised its YTD contract win by 16% to RM917.5m, exceeding our FY24 job win assumption of RM900m. The current outstanding order book of c.RM3.41b has also surpassed the FY17 up-cycle peak of RM2.4b.

Outlook. We expect a brighter outlook for KIMLUN in FY25 backed by the roll-out of public infrastructure projects with improved profit margin after a work prolongation and escalation in input and labour costs previously. We understand that KIMLUN is eyeing work packages and pre-cast concrete product orders from: (i) Pan Borneo Sarawak Phase 2, (ii) flood mitigation projects, (iii) semiconductor factories, and (iv) MRT3.

Forecasts. Although its YTD contract wins have already surpassed our FY24 assumption, we maintain our forecasts as we expect this new job win to have a minimal earning impact in FY24. Our FY25 job replenishment assumption is maintained at RM1.0b.

Valuations. Maintain our TP of RM1.69 based on unchanged at 12x FY25F PER for its construction business, 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 is able to capitalise 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 RM3.41b which will keep it busy for the next 2-3 years. Maintain OUTPERFORM.

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 - 4 Nov 2024