KNM’s 9MFY12 results came in above our and consensus expectations, largely due to exceptional items and the tax credits it was given over the acquisition of Borsig in 2008. We are raising our FY12f-FY13f earnings by 58.5% and 18.9% respectively to incorporate the tax credits in FY12 and productivity initiatives in FY13. Nonetheless, we are retaining our NEUTRAL recommendation on the stock and revising our fair value (FV) downwards to RM0.49 due to the assumption of the full conversion of its 488.0m warrants listed yesterday.
3QFY12 results still skewed by exceptional items and tax credit. KNM’s 9MFY12 core net profit came in above our and consensus estimates, largely due to the tax allowance of RM75m recognized this quarter coupled with improvements in its Asia & Oceanic and Europe segments, higher job progress recognition from a stronger orderbook and stable margin contributions from its projects. To recap, KNM was given a tax allowance when it acquired Borsig back in 2008 and we understand that it will recognize the final tax allowance of RM25m in 4QFY12, bringing to total tax allowance for this year to RM100m. The management does not expect any further tax allowances for its acquisition moving forward. After stripping the tax allowance this quarter, net profit would had been lower by some RM18.9m.
Raising FY12-13 earnings forecasts by 58.5% and 18.9% respectively. We understand that KNM will recognize a total of RM100m in deferred taxes in 4QFY12 due to the tax allowance given for its acquisition of Borsig in 2008. Hence, we are raising our FY12 estimates by 58.5%. As for FY13, we are raising our estimates by 18.9% due to the possibility of operational improvements in its business next year, supported by cost efficiencies and productivity initiatives and as well as the recovery of its business in the Europe and Asia & Oceanic segments.
Lowering FV to RM0.49. Incorporating the increase in our FY13 earnings and the assumption of the full conversion of its 488.9m warrants that were listed yesterday, we are trimming our FV from RM0.55 to RM0.49 though maintaining the NEUTRAL recommendation on the stock given the limited upside to our valuation.
3QFY12 results still skewed by exceptional items and tax credit. KNM’s 9MFY12 core net profit came in above our and consensus estimates, largely due to the tax allowance of RM75m recognized this quarter coupled with improvements in its Asia & Oceanic and Europe segments, higher job progress recognition from a stronger orderbook and stable margin contributions from its projects. To recap, KNM was given a tax allowance when it acquired Borsig back in 2008 and we understand that it will recognize the final tax allowance of RM25m in 4QFY12, bringing to total tax allowance for this year to RM100m. The management does not expect any further tax allowances for its acquisition moving forward. After stripping the tax allowance this quarter, net profit would had been lower by some RM18.9m.
Raising FY12-13 earnings forecasts by 58.5% and 18.9% respectively. We understand that KNM will recognize a total of RM100m in deferred taxes in 4QFY12 due to the tax allowance given for its acquisition of Borsig in 2008. Hence, we are raising our FY12 estimates by 58.5%. As for FY13, we are raising our estimates by 18.9% due to the possibility of operational improvements in its business next year, supported by cost efficiencies and productivity initiatives and as well as the recovery of its business in the Europe and Asia & Oceanic segments.
Lowering FV to RM0.49. Incorporating the increase in our FY13 earnings and the assumption of the full conversion of its 488.9m warrants that were listed yesterday, we are trimming our FV from RM0.55 to RM0.49 though maintaining the NEUTRAL recommendation on the stock given the limited upside to our valuation.
Source: OSK
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