PETALING JAYA: Recovery prospects are expected to gain traction for Kimlun Corp Bhd for the financial year ending Dec 31,2021, (FY21) on higher contract rollouts.
The engineering and construction services provider is looking at securing RM500mil worth of construction contracts and RM150mil to RM180mil manufacturing contracts this year.
Its outstanding order book stood at RM1.4bil as at the fourth quarter of 2020, comprising RM1.1bil construction and RM300mil manufacturing jobs, compared with total outstanding order book of RM1.54bil in the preceding quarter.
Kenanga Research, however, opined that Kimlun was rather conservative on its own manufacturing precast prospects, citing Singapore’s construction demand was expected to grow around 10%-30% from a low base in FY20.
The brokerage projected RM250mil worth of manufacturing contracts for Kimlun this year.
In total, it expected Kimlun’s order book replenishment to come in at RM750mil in FY21.
Key replenishment prospects, Kenanga Research said, were seen in the Johor Baru-Singapore Rapid Transit System, Pan Borneo Sarawak Phase 2, autonomous rail transit Kuching, Iskandar Malaysia Bus Rapid Transit; and the Central Spine Road.
Kenanga Research raised its target price for Kimlun to RM1.45 from RM1.30 previously based on an unchanged FY21 price-earning (PE) multiple of 10x. The brokerage maintained “outperform” on Kimlun.
“We continue to like the name for its sharp turnaround off a small earnings base and all-round exposure to either big infra projects or smaller scale affordable housing, ” it explained.
It noted Kimlun’s current stock valuation of 6.2 times FY21 PE was attractive, given that the counter also offered exposure to the rising construction activities in Singapore.
Similarly, RHB Research also raised its target price for Kimlun to RM1.11 from 93 sen previously, citing the company’s better-than-expected performance in FY20.
The brokerage maintained “buy” on Kimlun.
“We lift our target PE to 10.1 times (at the five-year mean) as we believe Kimlun is on strong footing to benefit from the sector recoveries in construction and manufacturing, ” RHB Research said, adding that it was keeping its FY21-FY22 construction order book replenishment forecast at RM500mil per annum.
Meanwhile, AmInvestment Research had a “neutral” take on Kimlun, maintaining its “hold” rating on the counter with an unchanged fair value of 79 sen based on eight times FY21 PE, in line with its valuation for small-cap construction stocks.
“During a recent engagement with analysts, Kimlun expressed reservation about the outlook for the local building construction market, ” the brokerage noted.
It explained this was because most of its clients (property developers) remained cautious on new launches, particularly in the high-rise segment (due to the oversupply situation) and in Johor.
“A majority of Johoreans are working in Singapore. This is an important group of property buyers, and they are not in the state to do the property viewing and execute the sale and purchase agreement, ” it said.
Kimlun’s net profit tumbled 86.3% to RM7.99mil in FY20 from RM58.39mil in FY19, while revenue fell 39% to RM749.71mil from RM1.3bil.
It announced a final dividend of one sen per share.