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Friday, March 11, 2016

Kimlun - First Pan Borneo package

Fairly valued

Kimlun’s JV with Zecon has clinched the first Pan Borneo Highway Sarawak package for 2016 worth MYR1.46b. This lifted its orderbook by 37% to MYR1.6b. Further job wins could come from other Klang Valley highways while precast orders could be boosted by MRT projects. We raise our 2016-18 EPS estimates by 8%-25% after imputing higher job win forecasts. Our new TP is MYR1.50 (+8%). HOLD; positive sentiment ahead of major infra work awards in the sector could lift valuations further.

Increasing orderbook by 37%

Kimlun’s 30% owned JV with Zecon (ZEC MK, Non Rated) has won a contract from Lebuhraya Borneo Utara (Non-Listed) for the Pan Borneo Highway Sarawak worth MYR1.46b. The total works are expected to complete in 48 months by 1Q20. This increased its outstanding orderbook by 37% to MYR1.6b. Assuming a pretax profit margin of 5%, we forecast a net profit contribution of MYR16m (5.5sen EPS) into 2020.

Diversifying into infrastructure jobs

This job win signifies Kimlun’s diversification into major infrastructure construction jobs that would cushion the slowdown in property construction jobs. Further job wins could come from the Klang Valley highways including DASH and SUKE while its precast division would benefit from the upcoming MRT projects in Malaysia and Singapore.

Adjusting earnings forecasts, TP

Given its high job win YTD of MYR668m, we raise our 2016 construction job win estimate to MYR1.3b (+30%) and precast order wins to MYR400m (+33%). However, we have lowered our 2017 precast margin estimate as we believe the KVMRT 2 would demand more lower-margin precast products. Subsequently, we raise 2016/17/18 EPS by +25%/+8.5%/+16% and our new TP is MYR1.50 (+8%) based on unchanged 10x 2017 PER.

Source: Maybank Research, 11 March 2016

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