Kimlun expects to benefit from several infrastructure projects


KIMLUN Corp Bhd is expected to benefit from the rollout of several infrastructure projects, a vibrant rebound in construction activity and confidence in management.

Hong Leong Investment Bank Bhd (HLIB) analyst Jeremy Goh said the company is targeting RM500 million worth of jobs in the financial year 2021 (FY21) which is expected to be back-loaded as work secured year-to-date is a mere RM4 million.

“Private jobs tenderbook currently stands at RM1 billion due to multiple tender extensions as developers are held back due to the Movement Control Order 2.0.

“As for public infrastructure jobs in the Peninsular, developments include submitted bid for one package of corporate social responsibility, attended request for information for the Mass Rapid Transit Line 3 (MRT3) and is expecting the tender for Iskandar Malaysia Bus Rapid Transit by end 2021 or early 2022,” he said in a recent note.

HLIB maintained its ‘Hold’ call for Kimlun, with an unchanged target price of 91 sen.

Goh said Kimlun’s progress rate for the Sarawak portion of the Pan Borneo Highway is at 90% and is on course for completion in 2021.

“Management is awaiting tenders for Phase 2 of the project but there have been no indications so far as to when the exercise will be held. Another possible job source is the Sarawak autonomous rail transit linking Kuching to Samarahan which is Phase 1,” he said, adding the tenders could be called by end-2021 or early 2022 as construction could start in 2022.

“Funding from the 2021 state budget has also been allocated for the project. Nonetheless, we note the potential for delays should the current Covid-19 case spike in the state continue,” he said.

Meanwhile, the company’s orderbook for manufacturing stands at RM300 million, with RM230 million in job wins for the FY20, and the company reaffirms its guidance for new orders of RM150 million to RM180 million for the current year.

“Several projects to watch out for are the rapid transit system (RTS), MRT3, as well as jobs in Singapore like the Jurong Region Line (JRL) and the Deep Tunnel Sewerage System (DTSS).

“Kimlun is a prime beneficiary of MRT3 rollout given that it has supplied MRT1 and MRT2 lines in the past with similar value of pre-cast orders,” he said. Kimlun had also yielded approximately RM270 million job wins on tunnel lining segment and segmental box girder orders.

“While we believe MRT3 would be no different given a similar project value, annual earnings accretion would be significantly lower with a much longer construction period.

“On a slightly bleaker note, precast jobs for the JRL require setting up a plant in Singapore and should jobs from the JRL materialise, Kimlun may consider debt or an equity placement for that purpose,” Goh said.

The research house’s forecast for Kimlun’s earnings for FY22 has increased by 9.1% on higher contract replenishment and recalibrating depreciation assumptions and introduced FY23 earnings of RM42.3 million.

“Upside risks include speedy project rollout in Malaysia and Singapore, while downside risks include high material prices, slow job rollout and political fluidity,” he said.