KKB Engineering (KKB) FY12 results were slightly below our and street estimates. However, its 4Q earnings bounced back as we had expected, especially after the company landed RM375.5m worth of jobs from July 2012. We continue to like KKB’s: (i) strong orderbook, (ii) possible upward rerating buoyed by its O&G expansion, and (iii) our bullish view on the progress of Sarawak’s SCORE, especially in Bintulu-Samalaju. Hence we maintain our BUY recommendation on KKB, with our RM1.75 FV unchanged.
Big improvement in 4Q. As we had expected, KKB Engineering saw a strong improvement in the final quarter of FY12, chalking up a net profit of RM7.3m (>+100.0% q-o-q, +9.2% y-o-y). This rebound was mainly driven by the company’s civil construction and steel pipe businesses. Although the FY12 cumulative net profit of RM20.5m was below our earlier estimate for RM23.9m, we still deem the numbers largely within our forecast as we had earlier pointed out that the contribution of its recent book enhancements may not make significant impact on KKB’s FY12 bottomline
Strong orderbook carried forward to FY13. KKB has been aggressively replenishing its orderbook since 2HFY12 and has to date bagged a total of RM375.5m jobs. With the strong orderbook carried forward to FY13, we are positive that the company would be able to perform better. Figure 1 at the end of this report summarizes the major contracts KKB has announced since July 2012.
O&G catalyst may materialise. As highlighted by management in announcing the company’s 4Q results, the completion of KKB’s deepwater river-front fabrication yard and jetty facilities would allow the group to expand further into O&G fabrication works in the near future. This is not forgetting KKB’s signing of an MOU with Brooke Dockyard last year, although this JV has yet to be finalized. Nevertheless, any expansion in O&G would represent a positive rerating for the stock.
Big improvement in 4Q. As we had expected, KKB Engineering saw a strong improvement in the final quarter of FY12, chalking up a net profit of RM7.3m (>+100.0% q-o-q, +9.2% y-o-y). This rebound was mainly driven by the company’s civil construction and steel pipe businesses. Although the FY12 cumulative net profit of RM20.5m was below our earlier estimate for RM23.9m, we still deem the numbers largely within our forecast as we had earlier pointed out that the contribution of its recent book enhancements may not make significant impact on KKB’s FY12 bottomline
Strong orderbook carried forward to FY13. KKB has been aggressively replenishing its orderbook since 2HFY12 and has to date bagged a total of RM375.5m jobs. With the strong orderbook carried forward to FY13, we are positive that the company would be able to perform better. Figure 1 at the end of this report summarizes the major contracts KKB has announced since July 2012.
O&G catalyst may materialise. As highlighted by management in announcing the company’s 4Q results, the completion of KKB’s deepwater river-front fabrication yard and jetty facilities would allow the group to expand further into O&G fabrication works in the near future. This is not forgetting KKB’s signing of an MOU with Brooke Dockyard last year, although this JV has yet to be finalized. Nevertheless, any expansion in O&G would represent a positive rerating for the stock.
Bullish view on Sarawak theme. We continue to see strong growth in Sarawak as well as heightening developments in the new future, backed by the Sarawak Corridor of Renewable Energy (SCORE) project. KKB’s strong presence in Sarawak will allow it to ride on this boom as well as reap the benefits from the state’s growth.
Maintain BUY, with RM1.75 FV unchanged. We had earlier advised investors to buy the stock on weakness and we are maintaining our BUY recommendation as well as retaining our RM1.75 FV, based on a 10x FY13f PER, mainly due to the company’s: (i) strong RM375.5m orderbook, (ii) possible upward rerating due to O&G expansion, and (iii) our bullishness on Sarawak’s SCORE, especially in the Bintulu-Samalaju area in which KKB has wide exposure. All these may serve to boost KKB’s FY13 outlook.
Maintain BUY, with RM1.75 FV unchanged. We had earlier advised investors to buy the stock on weakness and we are maintaining our BUY recommendation as well as retaining our RM1.75 FV, based on a 10x FY13f PER, mainly due to the company’s: (i) strong RM375.5m orderbook, (ii) possible upward rerating due to O&G expansion, and (iii) our bullishness on Sarawak’s SCORE, especially in the Bintulu-Samalaju area in which KKB has wide exposure. All these may serve to boost KKB’s FY13 outlook.
Source: OSK
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