PETALING JAYA: Kimlun Corp Bhd
is poised to post stronger earnings for this year and the next, underpinned by a new investment in semiconductor foundries and data centres by multinational companies (MNCs) as well as a new mass rapid transit (MRT) line project in Singapore.
The construction player is expected to benefit from the arrival of new workers by April next year which will alleviate its labour shortage situation.
Kenanga Research said a new wave of investment in semiconductor foundries and data centres by MNCs in Malaysia has been a shot in the arm for local construction players, including Kimlun.
The building jobs for these foundries and centres, typically fast-track in nature, fetch good margins, it noted, adding Kimlun is currently bidding for more such jobs in Penang and Johor.
This was one of the key takeaways after the research house recently attended the company’s post-third quarter (3Q22) results briefing.
For the 3Q22, Kimlun’s turnover and gross profit of its manufacturing division jumped 35% and 45% respectively. Historically, the manufacturing division contributes 40% of Kimlun’s total gross profits.
Kimlun added demand for its precast products in Singapore remains robust underpinned by the construction of Singapore’s Cross Island MRT Line in which Kimlun has secured two tunnel lining segment packages and is awaiting the tender results of another four packages.
To recap, a bulk of Kimlun’s external manufacturing revenue is derived from Singapore and it has benefited from the stronger Singapore dollar exchange rate (against the ringgit) which lifted its manufacturing revenue by about 4% in the 3Q22.
Year-to-date, Kimlun has secured RM353mil worth of new jobs. However, it conceded the chances of meeting its initial financial year 2022 (FY22) replenishment guidance of RM600mil to RM800mil (eyeing mainly private jobs) is slim as the awards would likely be deferred into the 1Q23, Kenanga pointed out.
On public projects, Kimlun is cautiously optimistic that they would be rolled out under the new unity government.
It aimed for jobs in Sarawak’s Autonomous Rapid Transit, the Pan Borneo Sarawak Highway (phase two), Iskandar Bus Rapid Transit and Rapid Transit Systems, Kenanga said.
Separately, Kimlun has brought in 70 foreign workers out of a total of 737 approved for its construction and manufacturing arms. The remaining workers from Indonesia, Bangladesh and Nepal are expected to arrive up until April next year.
Kenanga said Kimlun would be able to expedite the delivery of its outstanding order book of RM1.74bil (as at end-Sep 2022).
A new Employment Act to come into effect next year will provide for the payment of overtime salaries to workers earning less than RM4,000 (previously RM2,500).
This may slightly dent Kimlun’s bottom line given that about 10% of its workers fall under this threshold.
Post briefing, the research house kept its FY22 forecasts unchanged for Kimlun but raise its FY23 earnings marginally by 2% to reflect lowered FY22 replenishment assumption of RM500mil (from RM800mil) but increased FY23 replenishment of RM1.1bil (from RM800m) to account for the deferred contract awards, higher labour costs from the Employment Act, and stronger manufacturing margins.
Consequently, Kenanga raised the target price (TP) of the stock to RM1.12 from RM1.10 previously.
