AmResearch
KKB Engineering - Associated company wins Petronas supplier licence BUY
• We maintain BUY on KKB Engineering, with an unchanged fair value of RM1.80/share – a 10% discount to our sum-of-parts (SOP) value for the stock of RM2.00/share.
• KKB yesterday announced that an associated company Oceanmight Sdn Bhd has secured a three-year PetronasApproved Supplier licence for the category of “Offshore facilities Const-Major Onshore Fabrication” (Supplier Code: SO2020100).
• The rarely-approved licence has opened up huge possibilities for KKB, albeit via an associate, in the oil and gas, and marine sectors. It is a major coup, given the stringent licensing conditions, including strict bumiputera shareholding requirements. By the last count, Oceanmight is now one of fewer than 10 fabricators licensed by Petronas.
• It will now be able to tender for offshore facility fabrication jobs in the country, from oil majors as well as the full-service providers. KKB said the licence is valid for three years until expiry in 2016. Though not stated, such licences are usually
open for three-year renewals.
• Based on information gleaned from Petronas’ website, we understand that the scope of works involves onshore
fabrication of offshore facilities, and minor onshore fabrication for building, civil engineering, mechanical and pipe-coating works, as well as onshore fabrication of dry-tree units.
• KKB neither stated its stake nor identified the other shareholder/s in the associated company. It did say the licence is expected to contribute to its earnings and net assets starting 2014. KKB’s latest arsenal is back-dropped against expectations that Petronas would have to ramp up spending by 56% to RM71bil annually over the next three years – in order to meet its capex target of RM300bil over the 2011-2015 period.
• As it had turned out, 2012 was a year of consolidation and expansion involving a more than tripling of annual capacity to 50,000 tonnes at its Muara Tebas (Kuching) fabrication yard, which is equipped with a deepwater jetty.
• There is room for further expansion, given that less than half of its 28ha land has been used. We continue to expect KKB to rebound in FY13, with a near tripling of earnings to RM56.6mil on the back of its current order book of RM376mil – 2.3x of FY12’s revenue.
• We expect margins to improve significantly on the back of its securing a few major engineering jobs, including the RM171mil structural steel job for a ferro alloy complex in Samalaju. We maintain our annual new job assumption at RM300mil for FY13-FY15 for now, pending more details about its O&G ambitions.
Source: AmeSecurities
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