News

• KNM announced its indirect 70% stake JV company, CNI Engineering & Construction Malaysia has been awarded a contract of RM183m by Toyo Thai Malaysia for sub-con works for Pengerang Integrated Complex project.

• The contract duration is approximately of 25 months and schedule to commence in Sept 2015. Financial Impact

• KNM’s portion of the contract is about RM128m. KNM has secured about RM1.46bn worth of EPCC cont ract locally since 2H14.

• Year to date, KNM has secured RM466m worth of contracts. We maintain our earnings forecasts as we have already factored in RM540m related contracts replenishment.

• We believe our assumption on orderbook replenishment is fai rly achievable as we understand the company is confident to secure another circa RM350m related contract in near future.

Pros/Cons

• We are positive on the contract wins given KNM ability to replenish its orderbook amidst low oil price environment.

• We maintain our view that KNM, being among the largest process equipment manufacturer, should be one of the main beneficiaries of RAPID project.

• We understand that 3Q results will be better than 2Q as contribution from RAPID project will be gaining momentum in 2H15.

• In addition, the completion of acquiring Thailand’s ethanol business should add RM22m to bottomline in FY16 for Phase 1. Potential Phase 2 will double the capacity with capex estimation of 50% of Phase 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 RM0.67 based on unchanged 11x P/E.
• Our TP have not yet factored in value from EnergyPark Peterborough and Thailand’s renewable energy business.

Source: Hong Leong Investment Bank Research - 11 Sep 2015