AmInvestment Research retains Buy on Kimlun

  • Business
  • Thursday, 22 Sep 2016

Kimlun's cladding is used in the tunnels

KUALA LUMPUR: AmInvestment Research is retaining its Buy on Kimlun Corporation Bhd with a Buy call and fair value of RM2.44.

It said on Thursday its valuation basis of 11 times forward earnings remains – which is in line with its forward target price-to-earnings (PE) of 10 to 12 times for smallcap construction companies.

The research house said year-to-date, Kimlun’s construction division has bagged RM1.1bil new jobs (versus RM700mil for the whole of FY15), boosting its balance orderbook to MYR1.93bil, which will keep it busy for the next two years.

Kimlun believes that it should end FY16 with total job wins of RM1.3-1.4bil, and subsequently moderate/ normalise to RM600-RM800mil in FY17. Kimlun expects job wins over the remainder of FY16 and in FY17 to come largely from affordable high-rise residential developments.

AmInvestment Research said the guidance is fairly consistent with its forecasts that assume job wins of RM1.5bil in FY16F and RM700-RM800mil per annum in FY17F and FY18F.

Kimlun's manufacturing order backlog has almost doubled to RM300mil from RM170mil six months ago, thanks largely to the RM199.9mil contract to supply segmental box girders to MRT2, announced in March 2016.

"We expect its manufacturing order backlog to sustain at the RM200-RM300mil level with the impending award of a contract to supply tunnel lining segments to MRT2 (likely to be larger than the same contract it won from MRT1 years ago worth RM49mil), as well as recurring orders from various infrastructure projects in Singapore.

"Kimlun is a good proxy to the booming local construction sector given its involvement in MRT2 (supply of precast concrete segments), Pan Borneo Highway and the construction of affordable housing," said the research house.

AmInvestment Research added Kimlun's earnings profile has improved tremendously over the last 12 months.

"Its construction unit no longer relies solely on residential building jobs, but has expanded to the construction of a hospital (Gleneagle Medini, RM105mil), a shopping mall (IGB's Southkey Megamall, RM38mil) and hostels (Sime Darby's Pagoh Education Hub, RM38mil), as well as infrastructure (a section of Pan Borneo Highway, RM1.46bil, via a 30%-owned JV with Zecon).

"Similarly, its manufacturing unit has widened its product offering with the latest being rail sleepers (for the Thomson Line in Singapore) and parapet walls," it said.

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