- We maintain HOLD on KKB Engineering, with an unchanged fair value of RM2.50/share – a 5% discount to our SOP value of RM2.63/share.

-  KKB’s prospects have been greatly enhanced following the further discovery of natural gas offshore Sarawak.

-  SapuraKencana Petroleum yesterday announced that its subsidiary SapuraKencana Energy Sarawak Inc (SKE) has made four significant discoveries of non-associated natural gas in its SK408 Production Sharing Contract (PSC) area, offshore Sarawak.

-  SK408 Block is located in shallow waters ~120km offshore Sarawak covering an area of ~4,480 sq km in the Central Luconia Gas Province. These are the first four wells of a 10-well commitment in the SK408 PSC.

-  SKE is the operator with a 40% working interest with partners PETRONAS-Carigali Sdn. Bhd (30%) and Sarawak Shell Bhd (30%).

-  This latest development bodes well for local outfit KKB. We understand its oil and gas associate Oceanmight is targeting fabrication works for offshore structures of below 10,000 tonnes and up to 20,000 tonnes.

-  KKB holds a direct 43% stake in Oceanmight and an indirect 20% (effective 8%) stake via 40%-owned associate Edisi Optima Sdn Bhd. The other shareholder is Kuala Lumpur based Annexe Fair Sdn Bhd, with a 37% interest.

-  Oceanmight is reportedly the 7th fabricator licensed by Petronas, and the second in Sarawak after state-owned Brooke Dckyard & Engineering Works Corporation.

-  We understand that it is bidding for relatively small projects with a price range of between RM100mil and RM300mil. It is eyeing jobs involving general structures such as wellheads, jacket and drilling platforms, leading eventually to topsides.

-  We maintain HOLD for KKB, in view of the slow progress in the securing of projects in its conventional activities of building engineering and pipe manufacturing.

Source: AmeSecurities