KUALA LUMPUR: Kimlun Corporation Bhd’s forward earnings trajectory is expected to improve after turning in poor FY23 earnings, backed by the gradual execution of its RM2.2 billion orderbook, the highest tally since listing.
Hong Leong Investment Bank Bhd (HLIB Research) considers Kimlun’s replenishment targets conservative, considering multiple factors pointing to the upside.
The bank-backed research firm said its record in Johor and Sarawak helps this end.
HLIB Research said Kimlun’s post-sluggish FY23 with core profit after taxation and minority interests (PATAMI) of RM7.1 million, which was down 80.6 per cent year-on-year (YoY), the trajectory is expected to reverse in FY24.
“Both construction and precast segments were transitioning between old and new projects.
“We believe missing earnings expectations for three consecutive quarters (Q1-Q3 of 2023) resulted in it being a relative laggard among ‘Johor themed’ stocks.
Going forward, Kimlun expects decent performance in FY24 before delivering numbers in FY25 – more reflective of its RM2.2 billion orderbook.
“We gather that the RM780 million SSLR Lawas-Long Lopeng road project has reached a completion rate of about 25 per cent. With the site-clearing phase effectively completed, the project will move into the active execution phase.
“We believe the successful execution of its current peak orderbook could serve as a treating catalyst,” HLIB Research said in a report.
HLIB Research also noted that as of December 31, 2023, the unbilled orderbook stood at RM2.2 billion.
This does not include the RM133.6 million contract for a landed residential
project in Johor Bharu secured in January this year. Construction forms the bulk or orderbook at RM1.9 billion, while precast manufacturing is RM300 million.
HLIB Research said that despite a lower proportion from manufacturing, the segment typically commands an average group profit margin that is 3x higher than that of construction.
“We note that the RM2.2 billion orderbook tally matches Kimlun’s highest since listing, last achieved in FY18.
“During its better days, the orderbook ranged between RM1.5 billion to RM2.2 billion while core PATAMI ranged between RM58.4 million to RM81.9 million,” HLIB Research said.
The research firm noted that Kimlun is looking to expand its precast manufacturing capacity by 20-25 per cent and could deploy capital of RM40-RM50 million.
The additional capacity in Ulu Choh, Johor, will come online in the third quarter (Q3) FY24.
“We attribute this expansion to higher demand for industrialised building system (IBS) components, demand from data centres, impending infra upcycle in Singapore mass rapid transit (MRT) Cross Island Line (CRL) Phase 2 and 3, Changi T5, Tuas Ports and mega projects rollout in Malaysia.
“While there will be associated
start-up costs, the expansion is timely to ride on the coming infra upcycle in Johor and Singapore,” HLIB Research noted.
The research firm has maintained a Buy call for Kimlun with a target price of RM1.38 a share, a reasonable range for a small-cap contractor.
“We reckon FY25 earnings better captures earnings potential from its strong orderbook.
“At current market valuation, Kimlun trades at near 50 per cent price-to-book (P/B) multiple discount to the KLCON
Index consistent only with periods of sector down-cycle.
“The company is a proxy to infrastructure
rollouts in Malaysia and Singapore,” it said.
