- We maintain HOLD on KKB Engineering, with an unchanged fair value of RM2.71/share – a 5% discount to our SOP value of RM2.85/share.

- KKB yesterday announced a net profit of RM33.5mil (+63% YoY) which was significantly below expectations, coming in at just 60% and 66% of our and consensus forecasts, respectively.

- It declared a single-tier final dividend of 5 sen/share for a total payout for the year of 7.5 sen/share – translating to a yield of 2.9%.

- Revenue amounted to only 85% of our forecast, with engineering jobs accounting for 75% of our estimate. The result was mainly affected by the lack of jobs, with the group having only secured RM50mil worth of projects up until the end of November 2013.

- This was before it had won a RM227mil contract with CMS Infra Trading Sdn Bhd for the additional supply of mild steel (polyurethane-lined) pipes and “pipe specials”. The 18-month project (until May 2015) should help boost its performance ahead.

- For the year, the pipe manufacturing division performed better than expected, with revenue exceeding our estimate by 26% – helping to mitigate the lack of engineering jobs.

- For 4QFY13, its net profit disappointed, at RM3mil, down by 58%-59% QoQ and YoY as engineering jobs were are at the advance stages of completion, while costs were also higher.

- The 4QFY13 revenue was mainly contributed by structural steel works and cladding for the Pertama Ferro Alloy Complex in Bintulu, structural steel works for the proposed University College of Technology Sarawak in Sibu, structural steel works for Petronas LNG Train 9 Project and the supply of steel poles to Sarawak Energy Bhd.

- KKB says the group continues to explore all opportunities in its specialised and growing structural steel engineering services with an increased focus on energy-related projects and a long-term objective to participate directly in the oil and gas industry via its associate OceanMight Sdn Bhd and other strategic partners.

- We believe the group currently still has an outstanding order book of over RM300mil. We maintain our numbers for now, pending more concrete news of its bids and participation in the O&G fabrications jobs.

Source: AmeSecurities