Journey to Wealth
KKB Engineering - Good start to the year BUY
- We maintain BUY on KKB Engineering, with an unchanged fair value of RM1.80/share - a 10% discount to our sum-ofparts value for the stock of RM2.00/share. The fair value represents an implied forward PE of 8.2x for FY13F - on par with its five-year average forward PE.
- KKB recently announced the securing of a letter of award for a RM32.8mil subcontract with a consortium, which includes Apex Energy Sdn Bhd and PT Rekayasa Industri.
- The 14-month subcontract is for the supply and fabrication of steel structures (package 3 of the SAMUR project in Sabah). KKB said it is subject to a formal contract to be entered into in due course.
- This is a good start to the year for KKB. The estimated RM4.5bil SAMUR or the Sabah Ammonia-Urea project in Sipitang, Sabah, is a high profile one that is owned by Petronas.
- For FY12, it had secured major jobs worth a total of ~RM343mil (+164% vs. FY11's RM130mil). Our annual new job assumption stands at RM300mil for FY13-FY15. We maintain our earlier FY13F earnings at RM56mil.
- The new jobs secured in the later part of FY12 would provide some earnings momentum for FY13F - notably, a RM171mil structural steel contract with Pertama Ferroalloys Sdn Bhd for the latter's proposed ferro alloy complex in the Samalaju Industrial Park, Bintulu, Sarawak.
- As stated in our earlier report, management had deemed FY12 as a year of consolidation as job flows had slowed, while major jobs were completed.
- We had earlier slashed KKB's FY12F earnings estimate, by nearly half to RM22mil. For the nine months to 30 Sept 2012, it posted a net profit of only RM13.2mil.
- We had also lowered our FY14F earnings by 12% to RM61.5mil, and introduced FY15F earnings at RM62.2mil, assuming a flat growth pending confirmation of more jobs ahead.
- Recall KKB has further extended its MoU with Brooke Dockyard & Engineering Works Corp to 28 Feb 2013. We have yet to assume any contribution from this. Oil and gas fabrication jobs could be the catalysts to the share price.
- We maintain our BUY call on KKB for:- 1) other potential engineering and construction jobs remaining within SCORE, Sarawak's economic development corridor; 2) strong balance sheet with cash of RM78mil as at end-Sept 2012; and 3) attractive dividend yield of 7%.
Source: AmeSecurities
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