- We maintain BUY on KKB, with a lower fair SOP FV of RM2.00/share – leading to an implied PE of 14x FY16F.

- KKB posted a 3QFY15 net loss of RM3.4mil, bringing the 9MFY15 earnings to RM30.0mil (+138% YoY) – amid depleting conventional order book and after completion of the maiden wellhead project in 2Q15.

- No interim dividend was declared for the nine-month period, as was the case in the previous corresponding period.

- Despite the quarterly loss, the 9MFY15 earnings accounted for 80%-81% of our earlier, and consensus, full-year estimates. As the company expects a weaker 4Q, we have cut our FY15F earnings forecast by 23% to RM28.8mil. The pick-up will only be in FY16.

- We raise our FY16F and FY17F forecasts by 10% and 9%, respectively, given that the bulk of the Talisman wellhead contract its associate Oceanmight had secured in Sept will likely be booked by then.

- The group’s order book currently stands at ~RM180mil, including the Talisman wellhead job that is scheduled for completion by 2Q17. Recall that KKB had in Sept announced three contracts, including the Talisman job, worth a total of RM171mil.

- Oceanmight’s fabrication jobs directly benefit KKB, given its engineering expertise in steel and pipe manufacturing.

- The group’s current tender book stands at ~RM337mil, comprising ~RM87mil and ~RM250mil of conventional and O&G jobs, respectively. We maintain our conventional job assumption for FY15F at RM80mil.

- KKB expects the outlook to be challenging and continues its prudent cost management. It is staying focused on its long-term strategies to identify viable new business opportunities.

- KKB says the group has started its design and engineering phase of the engineering, procurement and construction of the Talisman wellhead platform. KKB will soon also start work on the supply of fabricated steel structures under the Petronas LNG Train 9 Project.

- The downside risks include the lack of conventional jobs for its engineering and manufacturing divisions. Continuing to mitigate the downside risks is a solid balance sheet, with net cash position at RM123mil as at end-Sept 2015 (+2% QoQ and +66% YoY).

Source: AmeSecurities Research - 6 Nov 2015