KIMLUN has won a RM128.1m contract to build a residential development project in Johor Bahru, Johor. This brings its YTD contract wins to RM789.0m and outstanding order book to RM3.28b. It is poised to benefit from a new wave of public infrastructure projects. We maintain our forecasts, TP of RM1.69 and OUTPERFORM rating.

KIMLUN has secured a RM128.1m contract from Tanah Sutera Development Sdn Bhd to build a residential development project in Johor Bahru. The contract comprises two sections: the first which is valued at RM57.86m is expected to be completed by 3QCY26 while the second section which is worth RM70.27m is scheduled for completion within 21 months from its commencement date. The offer for works for the latter section shall be valid for the employer’s consideration and acceptance within six months from 3 Oct 2024.

We are positive on this fifth key contract win for KIMLUN in FY24, bringing its YTD contract win to RM789.0m (vs. our FY24 job wins assumption of RM900m) and its current construction outstanding order book to RM3.28b which has already surpassed the peak of RM2.4b during the previous upcycle in FY17.

Outlook. We project 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. Maintained.

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 capitalises 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 RM3.28b which will keep it busy for the next 2-3 years. However, its valuations are rich after the recent run-up in its share price. Maintain OUTPERFORM.

Risks to our call include: (i) delays in the roll-out of public infrastructure projects, (ii) liquidated ascertained damages (LAD) arising from cos overrun and delays, (iii) rising cost of building materials; and (iv) labour shortages.

Source: Kenanga Research - 19 Sep 2024