This article first appeared in The Edge Financial Daily, on May 5, 2016.
Kimlun Corp Bhd
(May 4, RM1.79)
Maintain “buy” with an unchanged target price (TP) of RM2.23: Kimlun Corp Bhd announced that it had been awarded a RM165.8 million contract from Hillcrest Gardens to build five blocks of affordable apartments in Mukim Petaling under the Rumah Selangorku housing scheme. The works are expected to be completed by April 2019. With this recent contract, we estimate Kimlun’s year-to-date (YTD) job wins to stand at RM1.1 billion.
Despite being in the early days of May, its YTD job wins have already surpassed the full-year sum of RM830 million achieved last year. At the rate things are going, we reckon it is likely that job wins will surpass its previous high of RM1.2 billion achieved in financial year 2013 (FY13).
We estimate Kimlun’s total order book (construction and manufacturing) to now stand at RM2 billion. This translates into a cover ratio of 1.9 times FY15’s group revenue, which we regard as relatively healthy, considering the fast turnaround nature of Kimlun’s jobs. Its management shared that the slowdown in Iskandar, Johor, has impacted high-rise buildings the hardest. To counter this, Kimlun is tapping other segments such as affordable housing, factories and industrial buildings.
It has also started tendering more aggressively within the infra space as well as outside of its usual Johor market. This recent contract win, which involves affordable housing in Selangor, verifies Kimlun’s management’s efforts to tap other avenues for jobs had paid off.
The risk faced by Kimlun is Iskandar Malaysia’s slowdown hampering new job wins for the construction division. As YTD job wins of RM1.1 billion are still within our full-year assumption of RM1.45 billion (construction:RM1.2 billion and manufacturing:RM250 million), we maintain our earnings forecast.
We maintain our “buy” rating with a TP of RM2.23. Kimlun has managed to successfully reduce its dependency on the Iskandar Malaysia property market as evidenced by its robust job flows. It is also a prime beneficiary of the second line of mass rapid transit roll-out via the supply of segmental box girders and tunnel lining segment. Our TP of RM2.23 is based on an unchanged 11 times price-earnings ratio (mean: 10.7 times) pegged to FY16 earnings. — Hong Leong Investment Bank Research, May 4