KIMLUN: Entering earnings upcycle

Stronger FY24 and FY25 earnings anticipated. KIMLUN's earnings is primed for promising prospects in FY24-25, underpinned by unbilled orderbook of RM2.48bn (3.0x cover on FY23 revenue and the highest achieved since FY18), with 85% dedicated to construction and the remaining to precast manufacturing. During the construction and property booms, KIMLUN’s orderbook typically ranges between RM1.5bn to RM2.2bn, with core PATAMI ranged between RM58.4m to RM81.9m. As such, we anticipate KIMLUN’s earnings to undergo a significant turnaround in FY24, reaching RM36.7m from the sluggish FY23 core PATAMI of RM7.1m. This upward trajectory is expected to extend into FY25 as projects progress ramp up.

Aplenty of job opportunities. Management has set FY24 targets for construction wins at RM800m to RM1bn, and RM150m to RM200m for precast wins. However, we view these targets as conservative, given that these are lower than FY23’s total win of RM1.5bn. KIMLUN is highly likely to surpass its own FY24 targets, considering (i) robust pick-up in construction activities in Johor and (ii) depreciation of the MYR against the SGD, coupled with progress in MRT CRL Phase 2. Several projects were discussed during the Johor state development meeting, including (i) SEZ, (ii) SFZ, (iii) multiple highway upgrades, (iii) flood mitigation schemes, (iv) upgrade of Sultanah Aminah Hospital and construction of Sultanah Aminah Hospital 2, (v) upgrading of Sultan Iskandar Building and Sultan Abu Bakar Complex, (vi) proposed traffic dispersal, and (vii) water supply project. We gather that Kimlun has shown interests in multiple highway upgrade jobs, flood mitigation packages while also qualified to bid for hospital jobs in Johor. Its precast division will benefit should the Johor LRT dispersal project take-off having supplied LRT & MRT projects in the past.

Pending breakout. Technically, KIMLUN is poised for a resistance breakout at RM1.05, with indicators showing uptick bias.  A successful breakout above the said level will spur the price further toward RM1.09-1.15-1.22 levels. Cut loss at RM0.94.

Collection range: RM0.98-1.00-1.03

Upside targets: RM1.09-1.15-1.22

Cut loss: RM0.94

Source: Hong Leong Investment Bank Research - 19 Apr 2024