KKB Engineering - Secures Structural Steel Contract

THE BUZZ

KKB Engineering announced yesterday that it has won the contract for the Proposed Ferro Alloy Complex in Bintulu worth approximately RM171.0m from Pertama Ferroalloys SB - formerly known as AML Manganese (Malaysia) SB - via a Letter of Acceptance dated 30 July 2012 for structural steel and cladding works. The completion time for the contract will be staggered within a 15-month period commencing from 3Q 2012 until 4Q 2013.

OUR TAKE

Finally, one more for the orderbook. Weare pleased to see KKB Engineering finally replenishing its structural steel orders after a long wait. The company’s contract flow is picking up pace as it also announced in July that it had received a Letter of Intent from KACC-JAKS JV (KJJV) to supply 1500mm O.D steel pipe piles worth RM28m.

Already incorporated into our earnings model. While structural steel works usually fetch higher profit margins for the group, we prefer to keep KKB’s earnings estimates status quo for both FY12 and FY13 (at RM40.7m and RM50.3m respectively) as we had already factored the contract replenishment into our valuation earlier.

Possible re-rating in the near future. Our house view is that the activities in the SCORE region (including Samalaju Industrial Park) may pick up soon and more jobs should be announced and awarded to contractors and sub-contractors in the near term. This will correspondingly create new opportunities for the company in the near term. Also, the impending joint venture agreement with Brooke Dockyard may be another catalyst for KKB’s bottom-line. As such, we think there is a high possibility of a re-rating on the company soon.

Maintain NEUTRAL, raising FV slightly. As KKB’s profit visibility improves and the pace of activities in Samalaju gains momentum, we are revising our valuation parameters slightly upward from a 9.5x FY12 PE to 10x FY12 PE. This leads us to a new FV of RM1.58, which is slightly higher than our previous FV of RM1.50. Nevertheless, we are maintaining our NEUTRAL recommendation on KKB as we had earlier incorporated the contract award into our forecast. That said, we may rerate KKB upwards as the company’s outlook brightens. 

Source: OSK