- We maintain BUY on KKB Engineering, with an unchanged fair value of RM1.91/share – a 5% discount to our SOP value of RM2.00/share.

- KKB posted a net profit of RM11.4mil in 1QFY13 (+48% YoY, +55% QoQ), on the back of a sizeable increase of engineering turnover (+126% YoY, +135% QoQ). The 1QFY13 earnings represent 20% of our full-year net profit forecast.

- We deem the result to be in-line with our expectations, as KKB gets right into its engineering jobs, most of which were secured only towards the end of last year, in the quarters ahead. As expected, no interim dividend was declared.

- Its projected rebound from last year’s disappointing result is on track, with engineering jobs accounting for 77% of its turnover at an intact EBITDA margin of 19.8%.

- While manufacturing turnover fell (-51ppts YoY, -13ppts QoQ), the division’s EBITDA margin more than doubled to 48% in 1QFY13 from 22.4% a year earlier (+14ppts QoQ).

- We believe this was partly contributed by the ongoing construction of the water pipeline for the Sama Jaya Free Industrial Zone in Kuching (a RM48mil contract).

- As at 31 March 2013, KKB’s outstanding order book stood at RM310mil, which would keep it occupied for the next 18 months. As at 31 March, KKB had bid for RM226mil worth of projects in Sabah and Sarawak. It will also tender for RM262mil worth of jobs in 2QFY13.

- We maintain our FY13F-FY15F forecasts and our annual new job assumption at RM300mil.

- KKB’s earnings profile are poised for a significant change after its 43%-owned associate Oceanmight Sdn Bhd recently secured a 3-year Petronas-Approved Supplier licence for fabrication of O&G steel facilities.

- KKB executive director Kho Pok Tong recently told The Edge weekly that it is eyeing the full range of fabrication jobs in the oil and gas industry – including construction, installation and commissioning contracts.

- In 2012, KKB more than tripled its yard capacity to 50,000 tonnes annually, making it the owner of one of the biggest fabrication yards in the country. The 28.3ha yard in Kuching fronts Sungai Sarawak and is equipped with deep-water jetty facilities.

- We continue to like the stock for its attractive dividend yield of 6%-7%, aside from the blip last year.

Source: AmeSecurities