- We reiterate our BUY call on KKB Engineering, with an unchanged fair value of RM2.05/share – a 5% discount to our SOP of RM2.15/share – by virtual of its associate Oceanmight’s oil and gas fabrication potential in Sarawak.

- On the heels of a 5-month RM10mil pipe supply deal signed with CMS Infra Trading last week, KKB’s subsidiary Harum Bidang Sdn Bhd has secured another contract with the same party – this time for a bigger sum of RM43.9mil.

- KKB yesterday announced that Harum Bidang had on 24 Nov 2014 accepted the 2- year contract with CMS Infra for the delivery of concrete-lined mild steel pipes and mechanical couplings. A written agreement will be entered into in due course.

- Its main supply contract with CMS Infra currently totals RM227mil for the construction of the RM964mil Tanjung Manis water supply project (Phase 1). That contract is expected to be completed by 3Q15.

- CMS Trading is a subsidiary of Cahya Mata Sarawak Bhd (CMS), which holds a 20% stake in KKB. As we have noted, KKB would likely continue to receive workflow from CMS – as evidenced in this latest contract.

- The latest brings major jobs secured to-date to over RM50mil – meeting our recently revised new order assumption for FY14F. For FY15F and FY16F, we expect it to secure new orders of RM250mil and RM280mil, respectively, for its conventional activities.

- We remain convinced that premium is attached to its 43%-owned associate Oceanmight Sdn Bhd, one of eight Petronas-licensed O&G fabricators nationwide and one of just two in Sarawak to undertake jobs for the national oil company.

- Our job win assumptions for Oceanmight at RM80mil per annum for FY15F-FY16F and at RM130mil for FY17F are conservative. It is bidding for RM960mil worth of O&G fabrication jobs, the results of which could be known by 1QFY15. A 30% success rate could see it winning close to RM300mil worth of jobs – potentially translating into RM150mil each for FY15F and FY16F.

- Current valuation remains undemanding at 11x FY15F EPS.

Source: AmeSecurities