- 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.

- Upstream has reported KKB to be the frontrunner for the engineering, fabrication and procurement of one of Canadian player Talisman’s Kinabalu deep wellhead platforms.

- Unnamed sources told the publication that KKB was among eight Malaysian fabricators in the running to provide the services to Talisman for the fabrication of the 3,000-tonne platform, which includes the process modules.

- Upstream reported that KKB was the frontrunner, with the current lowest bid that is 5% lower than those of the others, which include SapuraKencana and Malaysian Marine & Heavy Engineering.

- However, the publication noted that Talisman was evaluating KKB’s track record as the Kinabalu wellhead platform will be at a high-pressure, high-temperature zone. The platform and associated pipelines will be linked to the existing infrastructure.

- Talisman holds a 60% stake in the Kinabalu oil production sharing contract, which is a mature oilfield off Sabah. Upstream reported that the total contract value for the project is said to be in the range of between US$170mil and US$180mil. We believe the speculated contract value includes associated works. Our O&G order for KKB is conservative at only RM80mil for each of FY15F and FY16F, and at RM130mil for FY17F. Our net profit margin assumption is at 14%-15%.

- Regardless, we still expect the contract value for the wellhead platform to be substantial, possibly in the region of between US$60mil and US$80mil. We view this development positively. It is tangible evidence that KKB is able to compete based on pricing, with the advantages of its geographical operations in Sabah and Sarawak.

- We expect the award winner for this 12-month contract to be announced by 1Q15, as well as for most of KKB’s 43%-owned associate Oceanmight Sdn Bhd’s RM960mil bids for O&G fabrication jobs. Upstream also reported that Talisman was close to awarding the Bungka Pakma wellhead platform on PM-3 CAA, for which Vietnam’s PTSC and SapuraKencana are frontrunners. 

Source: AmeSecurities