Maintain ‘Hold’ as Kimlun seeks to regain momentum


KIMLUN Corp Bhd is expected to recognise earnings from its RM98 million planned residential project in Bandar Seri Alam in the next 24 months, said Hong Leong Investment Bank Bhd’s (HLIB) in a research report yesterday.

Analyst Edwin Woo said Kimlun’s order replenishment has been challenging amounting to a mere RM20 million in the first half of the financial year 2021 (1HFY21).

“Management has maintained its RM500 million construction contract replenishment guidance for FY21 despite slightly less than three months remaining. Some outstanding tenders are for hospital, infrastructure projects in Sarawak and private sector opportunities.

“Given the time constraint we have imputed a RM250 million assumption in FY21 which could hinge on revival of private sector jobs on reopening,” said Woo.

He added that elevated construction material prices could also potentially slow down the group’s construction progress that could lead to increased downside risks to earnings forecasts.

In addition, Woo said Pan Borneo Highway (PBH) in Sarawak has achieved 90% progress.

“The progress rate is relatively unchanged from the rate divulged in its last briefing on April 21, implying difficult construction conditions, which we think is due to supply chain issues in addition to restrictions.

“Management has also indicated limited timeline visibility for PBH Phase 2 tenders. As such, Kimlun has tendered for other state infrastructure projects,” said Woo.

Kimlun’s outstanding manufacturing orderbook stands at RM300m with orders in 1HFY21 came in at RM75 million versus our assumptions of RM200 million orders in FY21.

“However, like construction, management has maintained its guidance of RM150 million-RM200 million for FY21,” he added.

The research outfit expects Kimlun to secure various project orders from Singapore and could also secure work from Singapore’s Rapid Transit System.

“Deliveries have also suffered in tandem with slower construction activities in Singapore due to various supply chain issues. We reckon current labour supply challenges will be slow to subside as mitigation is tricky amidst the ongoing virus spread,” he added.

HLIB tweaked FY21/FY22 earnings by -6.3%/+2.3% after adjusting for property recognition assumptions.

“We maintain ‘Hold’ with a slightly higher target price of RM0.85 (from RM0.84), based on FY22 EPS pegged to 7x target P/E multiple (near five-year mean),” he noted.