KimLun ... Feb11

ZJ Research Investment Highlights / Summary
• Up and coming engineering and construction services provider – Kimlun has steadily grown from a small-scale contractor to a full-fledged player capable of both complex building and infrastructure
construction. Clientele comprises prominent property developers from public and private sectors, as well as international contractors.

• Great potential in Industrial Building Systems (IBS). Kimlun is also a capable IBS builder, complemented by its in-house precast concrete products manufacturing arm. It stands to benefit from the Government’s push
for more constructions using the IBS method.

• Bright growth prospects ahead. We expect Kimlun to be kept busy with the bustling construction activities in Iskandar Malaysia,  and the expected rollout of major projects under the 10MP and ETP. Kimlun is a proven supplier of tunnel lining segments for the Singapore MRT projects and would be a likely candidate to supply similar products for our local MRT initiatives.

• Healthy fundamentals. Kimlun is in a net cash position post listing, enabling it to scale up operations with ease to meet rising demand. We project the Group to record double-digit earnings growth over the next two
years riding on back of the construction boom.

• Risks include delays in the award of contracts by its clients and slow rollout of construction projects by the Government, as well as fluctuation in building materials prices.

• Initiating coverage with a Buy recommendation and a fair value of RM2.02, derived by pegging our FY11 EPS projection of 18.4 sen against a peerbenchmarked target PER of 11x. We like Kimlun for its i) promising earnings prospects, ii) healthy balance sheet, iii) proven delivery track record, and iv) reputable clientele from both private and public sector.