HLBank Research Highlights
KNM Group Berhad - “Sawadee Kap”.
Highlights
- The recent venture into Thail and’s renewable energy ethanol market comprises 2 phases. Phase 1 with capacity of 200k litres/day is expected to be completed in 4Q15 and fully operation in FY16. Phase 2 will have similar capacity and needs 12 months to construct. Equity investment for Phase 1 is about RM89m and estimated payback period of <5 years.
- The outlook for ethanol market is favourable given the rising ASP (Price of THB 27/litres versus cash cost of THB 15- 16/litres) with government policy to promote the usage of bioethanol. Supply of main raw material, Cassava, should not be an issue given its 49% stake in Impress Farming which is involved in trading and supply of cassava.
Comments
- We are positive about this new venture as it is inline with company’s aim to transform from project based earnings to more recurring income. With an assumption of i ) ASP of THB 25/litres (vs. current price of THB 27/litres, ii) Cost of THB 2.3 kg for cassava, iii) utilisation of 80%, iv) 7% financing rate and v) 72% effective stake, we estimate Phase 1 has potential to contribute additional ~RM22m (or add 17%) to bottomline in FY16 (Ref Fig 1). Potential Phase 2 will double the capacity with capex estimation of 50% of Phase 1. Inclusion of Phase 1 will boost our TP to RM1.03 (+17%).
- The propose construction of a bio-ethanol plant (~95% completed) is in line with Thail and’s Alternati ve Energy Development Plan (AEDP-2012-2021) to boot ethanol usage to 3m litres/day by 2015 and 9m litres/day by 2021.
- Recent fall in crude oil price has caused concern on the demand for bio-ethanol. Our study shows that E10 95 remain trading at 16% discount to Gasoline 95 since June 14, albeit E85 discount has narrowed from 31% to 10% (Ref Fig 3&4). We believe the majority of bio-ethanol consumption remains E10 95 (~70% of total ethanol usage). According to Department of Energy in Thailand, bio-ethanol consumption has increased by average 16% YoY in Jan 15 and Feb 15 despite crude oil price fell > 40% since June 14.
- The recent JV with Korea-based Hansol (40:60) will be bidding for some biomass projects in Malaysia. The cont ract size is ranging from RM100m to RM300m. We understand there are numerous tenders for biomass projects.
- With the RAPID project proceeding, we expect to see continuous contract newsflow. We understand that KNM has a good chance to secure subcont ractor jobs from some refinery package in the near term. Together with UK Peterborough biomass project, we expect to see significant contribution of income from recurring renewable energy division in the future (Ref Fig 2)
Catalysts
- i) Announcement of more RAPID contract win(s); ii) Financial closing of EnergyPark Peterborough; iii) Additional contribution from Renewable Energy business in Thailand.
Risks
- Fluctuation in oil price; Project execution ability; Delay in contracts award.
Valuation
- We maintained our BUY call with unchanged target price of RM0.88 based on unchanged 11x FY16 P/E. Our TP have not factored in value from EnergyPark Peterborough and Thailand’ renewable energy business yet. KNM-OR could be cheaper entry due to 1 free warrant for 2 rights (Ref Fig 5).
Source: Hong Leong Investment Bank Research - 31 Mar 2015
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Discussions
Be the first to like this. Showing 11 of 11 comments
Lets see all the assumptions here:
1)Phase 1 with capacity of 200k litres/day
2)expected to be completed in 4Q15
3) fully operation in FY16
4)Phase 2 will have similar capacity
5)needs 12 months to construct
6)Equity investment for Phase 1 is about RM89m
7)estimated payback period of <5 years.
8)Price of ethanol THB 27/litres
9)cash cost of THB 15- 16/litres
10)Cost of THB 2.3 kg for cassava
11)utilisation of 80%
12)7% financing rate
13)72% effective stake
14)Phase 1 has potential to contribute additional ~RM22m (or add 17%) to bottomline
15)Phase 1 will boost our TP to RM1.03 (+17%).
16)boot ethanol usage to 3m litres/day by 2015 and 9m litres/day by 2021.
17)We believe the majority of bio-ethanol consumption remains E10 95
18)The recent JV with Korea-based Hansol (40:60) will be bidding for some biomass projects in Malaysia. The cont ract size is ranging from RM100m to RM300m. We understand there are numerous tenders for biomass projects.
19)With the RAPID project proceeding, we expect to see continuous contract newsflow
20)We understand that KNM has a good chance to secure subcont ractor jobs from some refinery package in the near term
21)Together with UK Peterborough biomass project, we expect to see significant contribution of income from recurring
22)i) Announcement of more RAPID contract win(s)
23)ii) Financial closing of EnergyPark Peterborough;
24)Additional contribution from Renewable Energy business in Thailand
25)unchanged 11x FY16 P/E
26)target price of RM0.88
27)etc
Wow! More than 20 assumptions.
2015-04-01 05:36
I think tougher than strike toto for 26 assumptions to actualize. Some more toto this evening already have answer !
2015-04-01 08:35
KNM's stories are all the same as this apa ini “Sawadee Kap”. Whatever it means. This is the same story all the time, over and over again since 10 years ago when its share price was more than RM10 apiece.
Finance and investing is a simple thing. Why are analysts keep making calls like this and made so many small time punters an speculators losing money all these years?
I doubt analysts are that stupid too. They are extremely smart. Smart in making money for themselves, not you unfortunately.
Suckers come suckers go. It is just like the four seasons.
2015-04-01 10:43
LOL Kc as always most of these assumptions will fall short n likely 2 years from now those loyal brave hearts will AGAIN ( for the 3rd time in 6 years? )get some 'free' warrants - of course after paying for the WRONGS - cannot call Rights no more LOL from General Lee for their loyalty. The OR closed up more than 5% today - unbelievable still got so many brave hearts :(
2015-04-02 01:30
Suckers come suckers go. It is just like the four seasons
my dad used to tell me that there's a goat born everyday - u just have to find it - tat's wat the analyst are doing LOL
2015-04-02 01:35
Posted by kcchongnz > Apr 2, 2015 03:11 AM | Report Abuse
Hah, our comments got flagged!
aiyoyo maybe some brave hearts not happy LOL hopefully won't kena banned later LOLL
2015-04-02 03:44
o.k o.k solly2 I make fun of sawadee CRAP! I no show respect to the beautiful Thai Language. Thousand apologies. O.k SAwadee kap LOL
2015-04-02 03:46
or izzit maybe becoz of the S*&^%^* word LOL but ain't tat the truth LOL the truth can sometimes be painful LOLL
Maybe this brave heart kannot sleep n have nightmare like me LOLL
2015-04-02 03:51
o.k2 last posting better chow first if not have nightmare again LOL
Hope all is well with u Kc :)
2015-04-02 03:53
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Frank Soweto
wah no play play after the rise of the phoenix now speak foreign language LOL How about Sawadee CRAP Loi toi
every time simply assume but every time came out flat wrong :( how about instead jumping here n there can put more effort to ensure tat all the delays are being implemented first like peterpan - already wat 2 years lapsed still waiting for closing though $$ thru loan n rights already in sometime back. why take so long? now money already gone purchasing this new Thai venture? another rights with free warrant next year?
wat happened to the listing of Borsig? still no news - gone case?
how about divvy? already so many quarters making 'profits' still no pay even one time though promised in 2012 that 50% of the profits will be given as divvy.
how about downgrade this stock first since all this while it has poor records of executing it's projects until results shown otherwise or u're paid to write all these rosy pictures for General 'wolf' Lee to goreng again? I can smell the wok getting ready for some action :)
on a separate issue why i3 no have the dislike button? can make a recommendation to have one LOL
2015-04-01 02:56