Kenanga Research is positive on the first contract win for Kimlun Corporation Bhd in FY24, a RM133.6 million building job in Johor, which has boosted its construction outstanding order book by 7% to RM1.99 billion.
“(This puts Kimlun) closer to its peak order book of RM2.4 billion seen during the last upcycle in FY17. We estimate the contract will fetch gross profit margin of 7% to 9%,” it said in its Company Update today (Feb 2).
The research house said the RM133.6 million contract, which is the first key job for FY24, against Kenanga’s full-year job win assumption of RM1 billion, will keep Kimlun busy for the next 2 to 3 years.
The contract from Sunway Bhd’s unit, Sunway Parkview Sdn Bhd, is for main building works for houses, ancillary buildings and amenities in its development in Johor Bahru, Johor and is expected to be completed in 3QCY26.
It maintained its earnings forecasts, MARKET PERFORM call and target price (TP) of RM0.83, based on 10x price-earning ratio (PER), at a discount to 18x we ascribed to mid-sized to large contractors given Kimlun’s much smaller size.
“There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us.”
Kenanga expected a brighter outlook for the engineering and construction services provider backed by the roll-out of public infrastructure projects.
“We understand that the group is eyeing work packages and pre-cast concrete product orders from Pan Borneo Phase 2, Johor Bahru – Singapore RTS project, flood mitigation projects, Singapore Cross Island Line, semiconductor factories, and MRT3.”
The research house favours Kimlun as it is a beneficiary of the rollout 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.
“However, its valuations are rich after the recent run-up in its share price,” it said.
The risks to Kenanga’s call include delays in the roll-out of public infrastructure projects, liquidated ascertained damages (LAD) arising
from cost overrun and delays, rising cost of building materials; and labour shortages.
