KKB Engineering - Another Contract Worth RM48m

THE BUZZ

KKB Engineering (KKB) announced on Bursa Malaysia yesterday that it has received a Letter of Acceptance from the Government of Sarawak for a RM48.0m contract for the Proposed Transmission Pipeline to Sama Jaya Free Industrial Zone, Kuching Division, Sarawak. The contract shall span over 24 months and the works under it is scheduled to be completed within 3QCY14, subject to the terms and conditions to be agreed upon between the Government of Sarawak and KKB.

OUR TAKE

Contract flow momentum continues. This is the third significant contract KKB has announced within a month. Previous contracts announced are (i) RM28m worth of contract in supplying steel pipe piles, and (ii) RM171m worth of contract for structural steel and cladding works in the ferroalloy complex construction awarded by Pertama Ferroalloys SB - formerly known as AML Manganese (Malaysia) SB. So far, there is a total of RM247m is in KKB’s orderbook.

Brighter FY13. As this contract awarded was for pipe laying works, we reckon that the margin may be narrower than for structural steel works and as the tenure is for 24 months, we think it might not contribute substantially to KKB’s FY12 earnings. Therefore, we prefer to maintain our FY12 earnings forecast. However, on the bright side, we think that KKB’s FY13 profit visibility has now turned brighter as more contracts have been secured. Besides, the contract flows also reaffirmed our house view that the activities in the SCORE Region are picking up pace. With that, we believe that KKB may be able to bag in more contracts in the near term and boost its FY13 earnings.

Maintain NEUTRAL but possible rerating in near term. Although KKB’s contracts flows have been picking up lately and the profit visibility has improved, we still prefer to maintain our earnings forecast for FY13 and our NEUTRAL recommendation at this juncture. Nevertheless, we may relook into KKB in the near term with a possible upward rerating given that the JV with Brooke Dockyard is still pending and more contract flows may come in from the SCORE Region.

Source: OSK