• HLIB Institutional Research has a BUY rating on KNM with target price of RM0.80, or 38% upside. KNM remains our top oil & gas proxy pick as it offers robust growth prospects (FY14-16 CAGR of 55%) at undemanding valuations of 9x and 8x FY15-16 P/E (vs 5-year average 17x) and 0.45x P/BV (33% below its 5-year historical average 0.67x). We think such valuations have provided a sufficient margin of safety and cushion further share price decline, supported by grossly oversold daily and weekly indicators .
• Still strong despite tumbling oil prices. Fundamentals of KNM remain intact despite sliding oil prices in international markets. We understand that KNM has a good chance to secure another RM400m subcontractor jobs from some refinery package in the near term. Total contract win from RAPID currently is around RM1.2bn. Major rerating catalysts are: i) Announcement of more RAPID contract win; ii) Commencement of EnergyPark Peterborough; iii) Strong quarterly earnings due to lower finance cost and sustained margin; and iv) Relisting of Borsig to unlock value.

• Poised for a downtrend resistance breakout. After surging to a 52-week high of RM1.06 on 8 Aug 14, KNM share prices corrected 64% to a low of RM0.38 on 15 Dec 14 before consolidating upward to end at RM0.58 yesterday.
• The stock is building its base near RM0.55 (9 Jul low), with lower supports at RM0.54 (23.6% FR and uptrend support line). As technical oscillators are on the mend, KNM share prices could potentially breakout above RM0.60 (30-d/200-d SMAs and downtrend line). A decisive breakout above RM0.60 bodes well for the stock to advance higher to RM0.635 (50% FR) and our long term objective of RM0.70 (76.4% FR). Cut loss below RM0.53.

Source: Hong Leong Investment Bank Research - 6 Aug 2015