- We maintain BUY on
KKB Engineering, with an unchanged fair value of RM1.80/share – a 10% discount
to our sum-ofparts value for the stock of RM2.00/share. The fair value represents
an implied forward PE of 8.2x for FY13F – on par with its five-year average
forward PE.
- KKB recently
announced the securing of a letter of award for a RM32.8mil subcontract with a
consortium, which includes Apex Energy Sdn Bhd and PT Rekayasa Industri.
- The 14-month
subcontract is for the supply and fabrication of steel structures (package 3 of
the SAMUR project in Sabah). KKB said it is subject to a formal contract to be entered
into in due course.
- This is a good
start to the year for KKB. The estimated RM4.5bil SAMUR or the Sabah
Ammonia-Urea project in Sipitang, Sabah, is a high profile one that is owned by
Petronas.
- For FY12, it had
secured major jobs worth a total of ~RM343mil (+164% vs. FY11’s RM130mil). Our
annual new job assumption stands at RM300mil for FY13-FY15. We maintain our
earlier FY13F earnings at RM56mil.
- The new jobs
secured in the later part of FY12 would provide some earnings momentum for
FY13F – notably, a RM171mil structural steel contract with Pertama Ferroalloys
Sdn Bhd for the latter’s proposed ferro alloy complex in the Samalaju
Industrial Park, Bintulu, Sarawak.
- As stated in our
earlier report, management had deemed FY12 as a year of consolidation as job
flows had slowed, while major jobs were completed.
- We had earlier
slashed KKB’s FY12F earnings estimate, by nearly half to RM22mil. For the nine
months to 30 Sept 2012, it posted a net profit of only RM13.2mil.
- We had also lowered
our FY14F earnings by 12% to RM61.5mil, and introduced FY15F earnings at
RM62.2mil, assuming a flat growth pending confirmation of more jobs ahead.
- Recall KKB has
further extended its MoU with Brooke Dockyard & Engineering Works Corp to
28 Feb 2013. We have yet to assume any contribution from this. Oil and gas fabrication
jobs could be the catalysts to the share price.
- We maintain our BUY
call on KKB for:- 1) other potential engineering and construction jobs
remaining within SCORE, Sarawak’s economic development corridor; 2) strong
balance sheet with cash of RM78mil as at end-Sept 2012; and 3) attractive
dividend yield of 7%.
Source: AmeSecurities
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