News
Yesterday, KIMLUN announced that they were awarded a contract worth RM98.3m by MAHSING for the construction of 492 units of houses in Mukim Plentong, Johor. The contract is expected to take 27 months and slated for completion by July 2018.
Comments
We are neutral with the contract award as it is within our FY16 construction orderbook replenishment assumption of RM1.14b. Year-to-date, KIMLUN has bagged RM809.0m worth of construction jobs representing 78% of our FY16 construction orderbook replenishment assumption, with a remaining RM329m to be achieved. Likewise, for its manufacturing division they have secured RM200.0m worth of jobs from KVMRT2 vis-à-vis our replenishment assumption of RM300.0m with another RM100.0m remaining to be achieved by end of FY16.
Assuming pre-tax margins of 7%, this particular job is expected to contribute approximately RM2.3m to its bottom-line per annum, which we have already factored into our FY16-17E earnings.
Outlook
Currently, KIMLUN’s outstanding orderbook stands at RM2.07b (Construction: RM1.70b; Manufacturing: RM0.37b) providing earnings visibility for two years.
KIMLUN’s prospect remains bright underpinned by a RM2.0b construction tenderbook in affordable housing and infrastructure projects while their manufacturing arm is targeting tunnel lining segments (TLS) supplies for the Singapore MRT (Eastern Region Line) and Deep Tunnel Sewerage project (Phase 2). We also expect their industrial building systems (IBS) division to greatly benefit from the increase in affordable housing projects in line with the 11MP.
Forecast
No changes to forecast.
Rating
Maintain OUTPERFORM
Valuation
KIMLUN has been our Top Pick since our 4QCY15 Strategy report (5/10/15) and we reiterate our positive stance on the company with an unchanged TP of RM2.10 based on FY16E PER of 9.0x, which is inline with its targeted peers’ range of 9.0x-13.0x.
We like KIMLUN for their potential orderbook growth and their presence as an established IBS player in the market.
Risks to Our Call
Below-than-expected margins
Delay in construction works
Lower-than-expected orderbook replenishment
Source: Kenanga Research - 28 Apr 2016
KIMLUN (5171) - Kimlun Corporation - Still Going Strong Down South!
http://klse.i3investor.com/blogs/kenangaresearch/95589.jsp
