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Saturday, June 29, 2013

Kimlun Corporation - Bags RM43mil underground cable tunnel job BUY


- We maintain BUY on Kimlun Corp with an unchanged fair value of RM3.28/share, based on a 20% discount to our SOPderived value of RM4.10/share.

- Kimlun yesterday announced on Bursa that has secured a SGD17.13mil (RM43mil) job to supply tunnel segment linings (TLS) for the East-West Transmission Cable Tunnel Project EW2 in Singapore.

- Kimlun is expected to deliver the TLS over a period of 33 months.

- EW2 is part of the 35km Transmission Cable Tunnel Project, a 60m underground transmission grid to supply electricity in Singapore.

- We view this news positively and expect Kimlun to secure more TLS and segmental box girders (SBG) jobs for upcoming MRT works in Singapore and Klang Valley. Kimlun also currently supplies SBG and TLS for the KVMRT Line 1.

- Kimlun is currently expanding its Johor plant (RM80mil sales p.a.) in anticipation for more MRT jobs while its Senawang plant is almost at full capacity (RM150mil sales p.a.).

- In our view, some of the upcoming manufacturing jobs include:- (i)Thomson MRT line in Singapore; (ii) KVMRT Line 2; (iii) other proposed extension of MRT network in Singapore, i.e. Eastern Region line, and North East line extension.

- Our channel checks indicate that the PDP for KVMRT 2 is expected to be appointed in July/August, with the SBG and TLS tender (worth ~RM300mil) to be awarded in the 2H of FY14F. We believe Kimlun is a frontrunner as it is one of only two major players in the industry.

- The new win reaffirms our view of Kimlun as a direct proxy to MRT jobs and to construction works in Iskandar Malaysia (IM).

- In our recent company visit, group CEO Sim Tian Liang said there had been a strong pick-up in construction jobs in IM and the Klang Valley post the 13th general election. However, the group will only tender for selective construction jobs with better margins of 8%-10%.

- Kimlun has a construction order book of RM1.2bil currently (end-Dec 2012: RM1.2bil) while manufacturing order book is currently at ~RM340mil.

- We expect new orders to grow from RM650mil in FY13F to RM900mil in FY14F and rising further to RM1.1bil in FY15F. Manufacturing order book is currently at RM300mil.

- With a focus on better margin jobs, we believe Kimlun’s valuations are undemanding given its strong fundamentals.

Source: AmeSecurities

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