Kimlun to gain from new orders

Company’s outstanding construction orderbook amounts to RM1.1b, which will last for the next 2 years, says analyst


KIMLUN Corp Bhd’s net income is expected to increase in the financial year 2021 (FY21) until FY22 amid expectations the company will replenish its construction and manufacturing orderbook.

Hong Leong Investment Bank Bhd (HLIB Research) analyst Jeremy Goh said Kimlun’s FY21-FY22 earnings forecasts increased by 4.2% and 2.4% respectively after imputing higher contract replenishment and assumption of new launches.

Kimlun’s outstanding construction orderbook amounts to RM1.1 billion, which Goh expects will last for the next two years with work progress still seeing constraints due to labour shortages and ongoing standard operating procedure (SOP) demands.

“Kimlun recently obtained a licence from the Construction Industry Development Board allowing it to bid for hospital projects. Nonetheless, we anticipate competitive bidding given the dearth of jobs in the market,” Goh said in a note yesterday.

HLIB Research has kept its ‘Hold’ call for Kimlun with a higher target price (TP) of 91 sen from 87 sen previously. The TP is based after earnings adjustments, pegged to seven times TP-to-earnings (PE) multiple.

The stock currently trades at a fair FY21-FY22 PE multiple of 6.9 times given the lack of any meaningful near-term catalysts.

Goh also expects Kimlun to participate in Phase 2 of the Pan Bor- neo Highway (PBH) in Sarawak, leveraging its existing presence in executing Phase 1 of the project.

Its management is adopting a replenishment target of RM500 million, having achieved RM464 million in 2020.

“We raise our orderbook replenishment assumptions for 2021 from RM400 million to RM500 million, having been too conservative previously,” he said.

Kimlun’s outstanding manufacturing orderbook stands at RM300 million, lasting for the next two years. Delivery of its precast products has recovered, buoyed by stronger construction activities in Singapore, with the pace of works in Malaysia expected to rebound further post-Movement Control Order (MCO) 2.0.

The company also expects a con- tinuing stream of orders from Singapore’s sewerage projects to boost its earnings in addition to the expectation that it will secure materials supply contracts from the Johor Baru-Singapore Rapid Transit System.

Kimlun’s fourth quarter (4Q20) results reported RM243.6 million in revenue and core earnings of RM12 million, bringing its FY20 performance to core earnings of RM15.2 million, decreasing by 74% year-on-year (YoY).

“Kimlun’s FY20 core earnings of RM15 million were above our and consensus’ expectations, coming in at 127% of our full-year forecast (consensus: 126%). The results beat was driven by a leaner than expected cost structure,” Goh said.

Kimlun’s 4Q20 core earnings declined by 28% and 74% on a YoY basis and year-to-date (YTD) respectively. He said the company’s YTD performance was hampered by various phases of MCO in 2020 with the worst being the stop work order in 2Q20.

Goh said Kimlun’s weaker performance on a YoY basis can be attributed to lower construction productivity from SOP measures and worker shortage, as well as supply of precast components for the Mass Rapid Transit Sungai Buloh-Serdang-Putrajaya Line approaching tail end.

RHB Investment Bank Bhd (RHB Research) has maintained its ‘Buy’ call on Kimlun and raised its TP to RM1.11 from 93 sen.

“We lift our target PE to 10.1 times as we believe Kimlun is on a strong footing to benefit from the sector recoveries in construction and manufacturing,” RHB Research analysts Eddy Do Wey Qing and Muhammad Danial Abd Razak said.

The research firm also adjusted its forecasts for the company’s FY21 and FY22 earnings by 0.4% and -2.8%.

“Our FY21-FY22 forecast earn- ings were adjusted by 0.4% and -2.8% to reflect the latest financial figures. We keep our FY21-FY22 forecast target construction orderbook replenishment at RM500 million per annum.

“Our new FY21 target PE of 10.1 times is at a circa 12% discount to small-cap peers, which we think is fair, considering the muted earnings growth beyond FY22 forecast,” they stated.