Kenanga Research has made an “Outperform” recommendation on Kimlun Corporation Bhd (Kimlun) with a TP of RM0.91.
“This is based on unchanged 10x PER, at a discount to 18x we ascribed to mid-sized to large contractors given Kimlun’s much smaller size,” it said today (Oct 3).
The upgrade from “Market Perform” to “Outperform” came after Kimlun bagged two building jobs in Johor from Eco World Development Group Bhd (Eco World) worth a total of RM140.2m.
This boosts Kimlun YTD construction job wins (vs. Kenanga’s full-year assumption of RM1.1b) to RM880m and its construction outstanding order book by 8% to outstanding order book is RM1.96b (inching closer to its peak order book of RM2.4b seen during the last upcycle in FY17), which will keep it busy for the next two to three years.
The two contracts were to design and build for one service apartment block and amenities, with completion in April 2026 and construction of 148 units of link-houses and ancillary buildings, with completion in April 2025.
The research house estimates the contracts will fetch a gross profit margin of 7% to 9% for Kimlun.
“We believe Kimlun will garner a slice of action in public infrastructure projects such as Phase 2 of Pan Borneo Highway Sarawak, flood mitigation projects, Johor Bahru – Singapore Rapid Transit System (RTS), and MRT3.
“We like Kimlun as it is a beneficiary of the roll-out of public infrastructure projects, it capitalises on the stable public infrastructure sector in Singapore with its precast concrete products manufactured in Johor, and its strong earnings visibility backed by an outstanding order book,” it said.
However, Kimlun’s risks include delays in the roll-out of public infrastructure projects, liquidated ascertained damages arising from cost overrun and delays, rising cost of building materials and labour shortages.
