KIMLUN BHD
Target price: RM1.45
CONSTRUCTION is expected to support earnings in 2018, with recovery at the manufacturing segment only expected in the second half of 2018.
“Kimlun has secured RM310mil of construction job wins year-to-date 2018, on track to hits its target of RM600mil to RM800mil for 2018. The remaining job wins in 2018 could potentially come from both government and private affordable housing projects,” said Maybank Investment Bank Research (Maybank IB).
“On its Pan Borneo Highway Sarawak work package, construction is ongoing with physical progress at 30%. Based on our checks with Kimlun and media releases, implementation of the project is likely to continue. However, what remains uncertain is whether the total project cost would be reviewed.”
Maybank IB said the stop-work order in March 2018 at selected packages of the MRT 2, which affected Kimlun’s manufacturing earnings in the first quarter of this year, has been progressively uplifted, with the affected third and final work packages resuming work towards end of the second quarter of 2018.
“Thus, we expect the second quarter 2018 manufacturing earnings to be flattish quarter-on-quarter, with significant recovery only in the second half of 2018.
“Year-to-date 2018, manufacturing job wins of RM150mil have already exceeded its earlier target of RM120mil for 2018. Kimlun has set a higher target of RM200mil, with the remaining job wins potentially coming from the Deep Tunnel Sewerage System 2 (DTSS 2) and projects in Singapore.
“We gather that Kimlun is still awaiting the results of two tenders for the DTSS 2.”
The research house said it is keeping its earnings forecasts intact, having already assumed construction and manufacturing order-book replenishment of RM700mil and RM200mil respectively for 2018.
“We estimate Kimlun’s outstanding order book at RM1.94bil as at end-March 2018. Our earnings forecasts have already been revised downwards during the recent first quarter 2018 results to reflect lower contribution from the manufacturing division.”