Kimlun benefits from country’s infrastructure boom

Kimlun Corp Bhd (Aug 30, RM1.88)

Maintain buy with a higher target price (TP) of RM2.24: Kimlun Corp Bhd is a must-own construction stock. We maintain a “buy” call, given its exposure to the RM80 billion Klang Valley Mass Rapid Transit (MRT) project and recently secured Pan Borneo Highway project. Escalating margins translated into better-than-expected first-half earnings, prompting us to lift our earnings estimates for the next three years. This bumps up our TP to RM2.24 (from RM2.13; 23% upside).

We are upbeat on Kimlun’s prospects, given its RM1.93 billion and RM300 million outstanding order books for its construction and manufacturing divisions respectively (as at June 30). Aside from the RM200 million segmented box girder order win in March, we are waiting for results on the tunnel lining segment’s supply contract for the MRT Line 2 project. A 30:70 joint venture with Zecon was awarded an RM1.46 billion job for the development and upgrading of the Pan Borneo Highway in Sarawak in April.

Kimlun is also aggressively tendering for various infrastructure projects and low-rise developments, which command higher margins.

The continuous margin improvements over the past quarters prompt us to nudge up our margin assumptions for its construction and manufacturing divisions. Our financial year ending Dec 31, 2016 (FY16) to FY18F (forecast) earnings are lifted by 5% to 14.9% respectively. The first half ended June 30, 2016 results came in ahead of our and consensus estimates on overall improved profitability, thanks to wider-margin infrastructure jobs and optimum efficiency at its manufacturing division.

Kimlun’s strong linkages to the infrastructure boom in Malaysia continue to justify our “buy” call. — RHB Institute, Aug 30

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This article first appeared in The Edge Financial Daily, on Sept 1, 2016. Subscribe to The Edge Financial Daily here.