- We reiterate BUY on KKB Engineering, with an unchanged fair value of RM2.05/share – a 5% discount to our SOP of RM2.15/share.

- KKB posted a 4QFY14 net profit of RM8.3mil (+581% QoQ; +181% YoY), bringing the total for FY14 to RM21mil (-37% YoY) – slightly above expectations at ~6% over consensus estimate of RM19.8mil, but below our expectation of RM28.7mil.

- KKB declared a dividend of 4 sen/share, below our estimate of a 5 sen/share payout. At the current price, this translates into a yield of 3.2%. Notably, KKB’s cash and cash equivalent rose significantly, nearly tripling to RM98.6mil as at 31 Dec 2014, from RM37.5mil a year earlier.

- We believe this stemmed from the collection of receivables related to the RM150mil structural steel job for the Pertama Ferroalloys’ plant in Samalaju. The collection could have been delayed due to the now-resolved financing issues faced by the project owners.

- Apart from fewer engineering jobs, KKB’s FY14 result was affected by a one-off RM15.5mil downward adjustment in the contract, which had since then been completed.

- KKB’s prospects now rest heavily on its oil and gas associate Oceanmight, which has tendered for RM960mil worth of fabrication jobs. Its maiden RM14.5mil contract is scheduled to be completed by March.

- Amid the current economic environment, O&G project awards could be delayed. We understand the company remains hopeful of Oceanmight securing jobs, if not in 1HF15, but in the second half of the year.

- Assuming a 30% success rate, new orders for FY15F could reach over RM300mil, including the O&G fabrication jobs.

- Its current unbilled sales stand at RM105mil, which would last 9 months. KKB has tendered for an additional RM47mil worth of conventional (steel structure/engineering) jobs, over and above its earlier bids of RM130mil. We are assuming news orders of RM250mil, RM280mil and RM300mil over the next three years.

- Ahead of the state elections next year, we expect the government to step up rural infrastructure development, and this would bode well for KKB. Management has said it would also step up bids this year for water-related infrastructure projects. Risks include a slower-than-expected recovery in the provision of pipes and structural steel/engineering services.

Source: AmeSecurities