KIMLUN (FV RM2.37 - BUY) Company Update: Record Year in The Making

Stock Name: KIMLUN
Company Name: KIMLUN CORPORATION BERHAD

Research House: OSK

Price Call: BUY

Target Price: 2.37

At our recent  visitto  KimLun following the release of its4QFY11 results, management  said the  jobs flow may  continue to  gush, with  a number of forthcoming  contracts including  the TLS of KV MRT SBK line and Singapore's MRTand NEWater extension. Its orderbook has  hit a new high  of RM1.62bn, of which RM597m is secured YTD.All in, we like KimLun's execution track record as well as strong contract winsto date. Hence, we maintain BUY, at a revised FV of RM2.37, based on 12x FY12PER and an enlarged share base, following the completion of the first 5% tranche of its proposed privateplacement.

SturdyRM1.62bn-strong orderbook.  KimLunorderbook  has reached a record RM1.62bn,of which RM597m worth of jobs was secured this year. These comprise the supplyof segmental box girders to the Klang Valley MRT SBK line worth RM223m and 5building jobs in Johor worth a combined RM374m, of which 2 jobs with a totalvalue of RM152m were announced yesterday. Of the RM1.62bn worth of contracts,some 80% is from its construction segment while the remaining RM310m comes fromits precast concrete division. Following a brief meeting with the company'smanagement, we took a look at each of its core focus areas to gauge thecontracts it can potentially win, as well as the jobs outlook for some of itsexisting and new business segments in the near term.     

More works likelyfrom MRT.  KimLun has submitted  a bid  for the  supply of tunnel lining segment  (TLS)  to the KV MRT SBK line,  which we gather may be  officially awardedlatest  by May this year. Management  said there is a possibility of the TLS portion  being split into various packages and shared among KimLun and other local boyssuch as Hong Leong Industries and MTD ACPI. That said, we continue to like KimLun'schances of securing at least a third of the works given its track record viaits current involvement in Singapore's MRT extension. In the long run, we seepotential jobs for KimLun from the widely anticipated 2 new KV MRT linescurrently known as the Circle line and Northwest-Southeast line. We alsounderstand that about 50% of the former may run underground across the city,which could translate into potential TLS contracts amounting to >RM500m,assuming a total value of RM20bn for the said line. 

Contracts fromSingapore could pick up in 2H12.  In2011,  KimLun's operations in Singaporecontributed 7% of the group's topline. Going into 2H12, we understand that the group is looking to secure  more works from the island, with tendersfor  the 35km underground powertransmission cable comprising 2 tunnels having closed at end-Feb and expectedto be  officially awarded out towardsend-2012.  We  continue to see opportunities in the mediumterm as the Singapore government has announced plans to build 2 more rail linestotaling  48km. Meanwhile, management hashighlighted the possibility of contracts from NEWater in relation to watertransmission pipes as well as a sewerage system with a combined length of some50km.

Source: OSK188