- We maintain 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 2QFY15 net profit of RM6.7mil (-12% YoY, -75% QoQ), bringing the 1HFY15 bottomline to RM33.3mil (+193% YoY) – nearly matching our forecast of RM35mil and matching consensus estimate of RM32.6mil for the full year. As expected, no interim dividend was declared for the quarter and the first half.

- While the result was positive, we maintain our forecasts for now, given that the next two quarters are expected to be flat in view of depleting conventional jobs in hand, and the timing of contracts.

- We nonetheless remain confident in its ability to secure rural development jobs, particularly in the supply of steel pipes, in the lead-up to the impending state elections.

- We also remain optimistic about its 43%-owned associate Oceanmight’s prospects in securing O&G fabrication jobs, notwithstanding the current bleak outlook in the O&G sector.

- Post the 2Q result, we estimate that it still has an outstanding order book of ~RM30mil. For now, we maintain our FY15F order assumptions at RM250mil for its conventional activities and at RM150mil for its O&G outfit.

- While order replenishment is likely to fall short for the conventional steel engineering segment, it may yet still surprise on the upside for the O&G segment. Our numbers may be adjusted upwards if it is successful in securing jobs, including O&G contracts, within 3Q15.

- We understand that Oceanmight is still in the running for over RM300mil worth of O&G fabrication jobs and about RM85mil worth of conventional jobs. We stay convinced that Oceanmight, being a Sarawakian outfit, stands a very strong chance in securing fabrication jobs.

- This is more so after it had successfully completed its maiden O&G fabrication job in April 2015 in the construction of a ~RM25mil wellhead platform (with zero loss-time injury) – reflecting its ready-to-deploy engineering expertise and capabilities, as well as geographical cost competitive advantage.

- Mitigating any downside risks is a solid balance sheet, with net cash position at RM121mil as at end-June 2015 (+11% QoQ and vs. only RM9mil a year earlier).

Source: AmeSecurities Research - 7 Aug 2015