KKB Engineering - A Fourth Contract

THE BUZZ

On 3 Sept, KKB Engineering announced that its subsidiary Harum Bidang SB accepted and signed a two-year contract with CMS Infra Trading SB (CMSIT) for the supply and delivery of various concrete-lined mild steel pipes and mild steel mechanical couplings when required, for a contract sum of approximately RM74.4m. Note that Cahya Mata Sarawak (CMS), which also owns CMSIT, is a major shareholder of KKB and as such, has a deemed interest in the award.

OUR TAKE

The fourth contract in three months. This contract is the fourth KKB has secured in three months; with it in hand, the company’s year-to-date order book has risen to RM321m. The other three earlier contracts are: (i) supplying steel pipe piles for RM28m, (ii) supplying structural steel and cladding works in the ferroalloy complex construction for RM171m, awarded by Pertama Ferroalloys SB, formerly known as AML Manganese (Malaysia) SB, and (iii) RM48.0m for the transmission pipeline to Sama Jaya Free Industrial Zone, awarded by the Government of Sarawak.

Clearer earnings visibility. The momentum of contract flows have reaffirmed our view that the activities in the SCORE Region are picking up in pace, bringing us to a further conclusion that KKB’s FY13 will be a healthy one. We also believe that more sizeable contracts may come to the company in the near term. As such, we have adjusted its FY13 earnings forecast slightly upwards from RM41.8m to RM45.2m for now, pending more structural steel works contracts which are usually able to fetch lucrative margins.

Upgrade to BUY.  After tweaking the FY13 earnings forecast, the new FV for KKB is now RM1.75, derived from 10x FY13 PE. With its last close price at RM1.51, KKB provides investors an 16% upside, coupled with the following positive factors: (i) the revitalisation of SCORE Region activities, (ii) the momentum of contract flows is picking up in pace, (iii) its FY13 earnings visibility has become better and (iv) the pending JV agreement with Brooke Dockyard to venture into the lucrative oil & gas sector may possibly provide investors an upside surprise. As such, KKB is now justified for our BUY recommendation.  

Source: OSK