KUALA LUMPUR: Kenanga Research is Neutral on Kimlun Corp Bhd
following a briefing that fell in line with its expectations. It maintains its Market Perform call with an unchanged target price of RM2.27 based on applied 9.0x FY18E PER.
Among the key updates of the briefing include the Pan Borneo construction progress, which stands at 16%. Completion is being pushed back three months to June 2020 due to minor issues with party land acquisitions, but Kenanga Research believes the earnings impact will be minimal.
Kimlun's tender book for construction and manufacturing stands at RM1.55bil.
"Management noted that they were unsuccessful in securing the LRT3 concrete product packages for their manufacturing division but will actively look out for new bids, especially from the recently announced JB Rapid Transit System (RTS) given the close proximity to their Johor
plant. However, tender packages for the project have yet to be called.
"Management also indicated interest in participating in the ECRL contracts for the supply of concrete slippers."
The rise in steel prices could potentially impact Kimlun's margins, especially for projects secured in FY16 with steel prices of RM2,400 to RM2,500 per tonne. Current steel prices are at about RM2,600 per tonne.
"However, they note that current situation is still manageable as long as steel prices remain
Kimlun has also announced that it has secured a RM50mil job from Mahsing for the construction of a connecting road into the Tanjung Langsat- Cahaya Masai Toll Connecting HIghway, which forms part of the Senai Desaru Highway.
"We remain NEUTRAL on this win as YTD contract wins of RM930m is still within our RM1.0b target. We believe our replenishment target is highly achievable backed by affordable housing projects given their pioneer status as an IBS player, which allows for speedier construction and less labour requirements.
"Current outstanding construction order-book stands at c.RM2.0b providing visibility for the next two years. We expect construction works from Pan Borneo, which makes up c.30% of their outstanding order-book to only pick up at quicker pace from 2H18."
The research firm notes that Kimlun has secured about RM90mil or 30% of its RM300mil targeted replenishment.
"Replenishment target is backed by potential Singapore manufacturing packages, i.e. DTSS 2, MRT Circle line 6 and North South Corridor Expressway. Current outstanding manufacturing order-
book stands at RM0.32b providing visibility for c.2 years. We anticipate contributions from KVMRT2 TLS and SBG to pick up in 2H17."
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