Analysts neutral on Kimlun, prospects to be driven by affordable housing projects
KUCHING: Despite the lack of of infrastructural projects, analysts believe Kimlun Corporation Bhd’s (Kimlun) prospects will likely be driven by affordable housing projects.
Despite the lack of major infrastructure projects moving forward, we believe near-mid-term outlook for Kimlun is buoyed by affordable housing projects, in line with Pakatan Harapan’s manifesto to build one million affordable homes (within two terms). Kenanga Research
The research arm of Kenanga Investment Bank Bhd (Kenanga Research) said, “Despite the lack of major infrastructure projects moving forward, we believe near-mid-term outlook for Kimlun is buoyed by affordable housing projects, in line with Pakatan Harapan’s manifesto to build one million affordable homes (within two terms).
“Given Kimlun’s pioneer status as an IBS manufacturer coupled with their vast experience for building affordable homes, we believe they will stand to benefit from both the construction and manufacturing fronts.
“Currently, Kimlun’s outstanding order-book stands at RM2.17b (RM1.72 billion construction and RM0.44 billion manufacturing) providing a two-year visibility.”
Meanwhile, on the two new contracts that were awarded to Kimlun recently, Kenanga Research pegged a ‘neutral’ view on the projects.
On Wednesday, Kimlun announced that it has secured two contracts with a total value of RM225 million. The first project worth RM144.1 million is a design and build project for roads and interchange at Johor Bahru from Focus Ace Sdn Bhd, slated for completion by October 2020 while the second contract is a manufacturing contract from M+W Singapore Pte Ltd worth S$27 million (circa RM81 million) to supply and deliver pre-cast building components by December 2018.
“We remain ‘neutral’ on the wins as Kimlun’s year to date (YTD) contract replenishments of RM265 million (construction replenishment of RM184 million and RM81 million for manufacturing) is still within our FY18E targeted replenishment of RM820 million (RM700 million construction target, and RM120 million for manufacturing).
“Assuming profit before tax margins of eight per cent for the road project and 15 per cent for the pre-cast supplies, these contracts are expected to contribute circa RM12.7 million to Kimlun’s bottomline per annum,” the research team explained.
All in, Kenanga Research upgraded its call on the stock to ‘outperform’.
It pointed out that Kimlun is backed by a healthy orderbook which can last them two years and it is also stand a good chance to benefit from PH’s affordable housing initiatives.
“We believe upside catalysts for the stock would be further wins from Singapore to showcase that KIMLUN’s manufacturing arm is not overly reliant on local contracts, such as the MRT, affordable homes contracts wins, and PH government’s endorsement of IBS implementation into projects,” it added.