Kenanga Research said Kimlun’s earnings are expected to improve in the second quarter ended June 30 (2Q22).
KUALA LUMPUR: Kimlun Corp Bhd
is expecting stronger second half results for the financial year 2022 (2H22) as its key project, the Sabah-Sarawak Link Road, picks up and the potential rollout of public projects ahead of the 15th General Election (GE15).
Kenanga Research said Kimlun’s earnings are expected to improve in the second quarter ended June 30 (2Q22).
This is compared with losses in 1Q22 as it marked down expected margins for certain projects, coupled with poor overhead absorption on weak progress billings, Kenanga Research said in a note to clients.
“More significant improvement could come in 2H22 when its RM780mil Sabah-Sarawak Link Road project moves up the S-curve.
“Kimlun also remains confident of meeting its order book replenishment target of RM600mil to RM800mil,” added Kenanga Research.
Year to date, the group has secured about RM200mil worth of new jobs.
The research house said “Kimlun is in a good position to garner a slice of action in the Johor Baru–Singapore Rapid Transit System project, for example in the supply of precast concrete segments, given the proximity of its plant in Ulu Choh, Johor.”
Hence, Kenanga Research has maintained its forecasts and FY22 order book replenishment of RM800mil.
As at end-March 2022, Kimlun’s outstanding order book stood at RM2.01bil, which is fairly close to the peak of RM2.4bil in FY17.
Kenanga Research liked Kimlun for improved sentiment on construction stocks with the potential rollout of public projects ahead of GE15 and its geographically diversified earnings base, with a strong presence in the precast concrete product segment in Singapore.
In addition, the group has strong earnings visibility backed by an outstanding order book of RM2bil, which could keep it busy for the next two years, said Kenanga Research.
For these reasons, Kenanga maintained an “outperform” call on the stock with a target price of RM1.10.
Meanwhile, other key takeaways from the recent Kenanga-Kimlun engagement include the acute labour shortage in the industry, which held players back from bidding for new jobs aggressively as “they are waiting for a government-to-government resolution.”
For Kimlun, Kenanga Research said the group has preference for Indonesian workers, given that they are generally hard workers with higher skill levels.
Another highlight is that the flow of contracts in the market has not picked up significantly, despite the reopening of the economy.
In the private sector space, Kimlun noticed that private developers are putting into the market smaller launches, skewed towards landed homes versus high-rise products, said Kenanga Research.
In the public sector space, it noted tenders have yet to be called for Iskandar Bus Rapid Transit, Sarawak Autonomous Rapid Transit and Pan Borneo Highway Sarawak Phase 2.
The downside risks for Kimlun include sustained weak flows of construction jobs from both the public and private sectors, project cost overruns and liabilities arising from liquidated ascertained damages, as well as rising costs of building materials.
