KNM; Hold
Price Target: RM0.55; KNMG MK

Business Times reported that KNM has not submitted any proposal for the listing of Borsig GmbH in Singapore yet though the company has the plan in mind. The company is awaiting response from the auditor which could have derailed the plan due to the huge deviation of RM49m FY12 earnings (37%) between its audited accounts and announced unaudited accounts (mainly due to impairment for its Brazilian unit), as announced recently.

KNM first announced the proposed listing in Sep 2012 with an indicative valuation of between RM1.8- 1.9bn. The listing of Borsig could raise up to RM475m for KNM, assuming it divests a 25% stake in Borsig, which could be utilised to fund its its renewable energy venture in Peterborough, UK. We believe that there may be some selling pressures on the stock if the IPO does not go through.

There is no change to our forecast at this juncture. There is unlikely to be any strong re-rating catalyst in the near term as we believe that its margin will remain depressed given the persistently weak external market conditions. Although share price has dropped to multi-year low, sentiment for the stock will likely be weighed down until the group is able to demonstrate ability to deliver consistent earnings and margins. Reiterate our Hold rating with RM0.55 TP.

Source: HwangDBS Research - 8 May 2013