- We maintain Hold on KKB Engineering, with a higher fair value of RM2.71/share – a 5% discount to our upward revised SOP value of RM2.85/share and at an implied PE of 12x FY13F EPS.

- KKB announced on Friday that its subsidiary Harum Bidang Sdn Bhd had won a RM227mil contract with CMS Infra Trading Sdn Bhd for the additional supply of mild steel (polyurethanelined) pipes and “pipe specials”.

- The “as and when required” supply order, which lasts until May 2015, is for the proposed construction of the RM964mil Tanjung Manis water supply project (Phase 1). CMS Trading is a subsidiary of Cahya Mata Sarawak Bhd (CMS), which holds a 20% stake in KKB.

- We have raised our FY13F-FY15F net profit forecasts by 3%-12%. With the latest contract, KKB’s order replenishment YTD now totals RM277mil – surpassing our annual order assumption of RM200mil. We had earlier cut the assumption from RM300mil annually as it had only secured RM50mil worth of new jobs prior to this.

- The new job has significantly boosted its outstanding jobs in hand; as at 30 Sept 2013, we estimate that it still had over RM200mil worth of unbilled orders. The latest pipe supply order brings the total outstanding order book to ~RM500mil YTD. Additionally, we learned that it has tendered for RM120mil worth of jobs and another ~RM80mil worth of jobs is expected to be submitted within 4Q13. Along with the jobs in hand, this augurs well for the group.

- Our channel checks also indicate that KKB’s 43%-owned associate Oceanmight Sdn Bhd has lined up a few jobs in the O&G sector, with potential direct bids to Petronas’ production-sharing contractors’ worth up to RM350mil. This is apart from other potential bids that could come along in 1H14.

- Along with the tenders for its traditional steel fabrication jobs (which remains buoyant amid the rapid development within SCORE), the bulk of the result of the O&G tenders would only be known by 1H14.

- Its fabrication yard in Muara Tebas, Kuching, has an installed pipe-manufacturing capacity of 15,000 p.a., and it has set aside an additional capacity of 35,000 tonnes for the impending O&G fabrication jobs.

- Notably, the yard boosts of highly automated and modernised equipment, with heavy load-out jetty facilities fronting the Sarawak River, which is just 5km away from the South China Sea.

- Pending a more certain outlook of its bids in the O&G sector, we maintain our HOLD call for now, with a higher fair value on the back of the just-secured pipes contract.

Source: AmeSecurities