KUALA LUMPUR: Kimlun Corp Bhd may register a decent performance in the financial year 2024 (FY24), with projections indicating even stronger figures in FY25, mirroring the robustness of the company's RM2.2 billion orderbook.
Hong Leong Investment Bank Bhd (HLIB) said that Kimlun's trajectory is expected to reverse in FY24, following a sluggish FY23 with core profit after tax and minority interest (PATAMI) of RM7.1 million, which was down 80.6 per cent year-on-year (YoY).
Both construction and precast segments are in transition between old and new projects, it noted.
"We believe that missing earnings expectations for three consecutive quarters, from the first quarter to the third quarter of 2023 (1Q23-3Q23), resulted in it being a relative laggard among 'Johor-themed' stocks.
"Going forward, management expects decent performance in FY24 before delivering numbers in FY25, which is more reflective of its RM2.2 billion orderbook," it said in a note.
HLIB also believes that the successful execution of Kimlun's current peak order book could potentially serve as a catalyst for re-rating.
The Sarawak-Sabah Link Road (SSLR) Lawas-Long Lopeng road project, valued at RM780 million, has achieved a completion rate of about 25 per cent, with the site clearing phase effectively completed. The project is now set to transition into the active execution phase.
As of Dec 31, 2023, Kimlun's unbilled orderbook stood at RM2.2 billion, excluding the RM133.6 million contract for the landed residential project in Johor Bahru secured in January 2024.
Construction forms the bulk of the orderbook at RM1.9 billion, while precast manufacturing stands at RM300 million.
HLIB noted that the RM2.2 billion orderbook tally matches Kimlun's highest since listing, last achieved in FY18.
It said during its better days, the company's orderbook ranged between RM1.5 billion and RM2.2 billion, while core PATAMI ranged between RM58.4 million and RM81.9 million.
Meanwhile, HLIB said Kimlun has set relatively conservative targets for FY24.
The company aims for construction wins ranging from RM800 million to RM1 billion, with a tender book valued at RM1.4 billion, and precast wins between RM150 million and RM200 million.
It said these figures are lower than the FY23 tally of RM1.3 billion for construction, whereas manufacturing secured RM200 million, with 99 per cent of it coming from Singapore.
"We expect Kimlun to surpass its own targets in FY24 due to robust pick-up in construction activities in Johor and depreciation in ringgit versus Singapore dollar plus pick-up in MRT Cross Island Line (CRL) Phase 2 progress.
"We believe Kimlun has made significant progress towards its construction targets year-to-date, at about RM500 million. Its track record of securing road works in Sarawak is also advantageous given the much-needed infrastructure spending in the state.
"Management similarly acknowledges upside risks to precast targets, factored in forecasted deliveries to Singapore, leaving upside risks from domestic industrialised building systems (IBS) demand, data centres and railway projects," it added.
Furthermore, Kimlun aims to expand its precast manufacturing capacity by 20 per cent to 25 per cent and could deploy capital of RM40 million to RM50 million.
The additional capacity in Ulu Choh, Johor, is slated to come online in 3Q24.
"We attribute this expansion to higher demand for IBS components, demand from data centres, impending infrastructure upcycles in Singapore, as well as mega project rollouts in Malaysia.
"While there will be associated start-up costs, the expansion is timely to ride on the coming infrastructural upcycle in Johor and Singapore," HLIB noted.
The investment bank has maintained a "buy" call on Kimlun with a higher target price of RM1.38, noting that the company is a proxy for infrastructure rollouts in Malaysia and Singapore.
It has changed Kimlun's FY24 forecast downward by 8.4 per cent and increased the FY25 forecast by 21 per cent after adjusting for the contract gestation period and updating balance sheet items.
Additionally, HLIB has introduced a FY26 core PATAMI forecast of RM68.9 million for Kimlun.