Kenanga Research said for Kimlun
KUALA LUMPUR: Kenanga Investment Bank Research is retaining its market perform recommendation for Kimlun with an unchanged target price of RM2.27.
It said on Tuesday Kimlun 40% JV company – JBB Kimlun had secured a RM263mil project from Astata Padu to build an office complex for the Majlis Bandaraya of Johor Bahru. It is slated for completion in October 2019.
“We are neutral on the win as Kimlun’s 40% effective share on the contract at RM105mil is well within our FY17E construction replenishment target of RM1bil; making up 10% of our target with a remainder of RM895m to be achieved in FY17.
“Assuming profit before tax margins of 8%, the contract is expected to contribute RM2.5mil to bottom-line per annum. Kimlun’s outstanding order-book currently stands at RM2bil (construction: RM1.75bil; manufacturing: RM250mil) providing visibility for the next two years,” it said.
Kenanga Research said for Kimlun’s construction segment, it is expecting Kimlun to secure more jobs within the affordable homes segment given their position as an industrial buiding sytems (IBS) pioneer which provides competitive edge within the space as IBS allows for speedier construction with less labour requirements.
“As for their manufacturing arm, we are expecting lower revenue for the year due to the timing gap between the end of on-going projects (SG Thomson line) and the delivery of MRT2’s packages in 4Q17.
“In the pipeline are potential Singapore manufacturing packages i.e. DTSS 2, MRT Circle line 6 and North South Corridor Expressway to be awarded later in the year.
“Post award, we maintain our FY17-18E earnings forecasts of RM70.7mil to RM79.3mil on the back of FY17E construction replenishment of RM1bil and manufacturing replenishment of RM350mil.
“Maintain Market perform. We maintain our MP call with an unchanged TP of RM2.27 based on 9.0 times FY18E PER. We believe our valuation of 9.0 times is fair despite being at the lower end of our targeted small-mid cap range of nine times to 13 times given that its profit after tax margin of 7% is relatively weaker against peers’ (HSL, Kerjaya, Mitrajaya) average margins of c.10%,” said Kenanga Research.
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