• KNM announced contracts win with total value of RM204m for year to date in FY15.

News

• The contract details are as below: i) RAPID subcontractor contract from Toyo Engineering (Package 5) – RM120m; ii) RAPID subcont ractor cont ract from Technicas (Package 3) – RM54.6m; and iii) Turkmengas petrochemical complex project – RM29m. Financial Impact

• Contracts period are between 12 to 18 months.

• Total contract win from RAPID currently is around RM1.2bn. We maintain our earnings forecasts as we have already factored a total of RM2.2bn RAPID related contracts or RM540m per annum based on contract duration of 4 years. We believe our earnings forecast in FY15 is fairly achievable as we only factored in RM270m revenue from RAPID as we only expect RAPID related contract to contribute in 2H15.

• We are positive on the contract wins. As mentioned in our initiation report titled “Phoenix Reborn!!” dated 2 July 14, KNM being among the largest process equipment manufacturer should be one of the main beneficiaries of RAPID project.

• With the RAPID project proceeding, we expect to see continuous contract newsflow. We understand that KNM has a good chance to secure more subcont ractor jobs from some refinery package in the near term. In addition, KNM has also submitted bid for sub-contractors job for the other packages of refinery plant and EPCC contract for tank farms and other associated facilities.

• 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. Together with UK Peterborough biomass project, we expect to see significant contribution of income from recurring renewable energy division in the future (Ref Fig 1).

Catalysts

• i) Announcement of more RAPID contract win(s); ii) Financial closing of EnergyPark Peterborough; iii) Additional contribution from Renewable Energy business in Thailand and/or from JV with Hansol.

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.

Source: Hong Leong Investment Bank Research - 10 Apr 2015