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KKB Engineering - To Regain Shine in FY13

kiasutrader
Publish date: Mon, 25 Feb 2013, 11:12 AM

KKB Engineering  (KKB)  FY12  results were  slightly  below  our  and  street  estimates. However,  its  4Q  earnings  bounced  back  as  we  had  expected,  especially  after  the company  landed  RM375.5m  worth  of  jobs  from  July  2012.  We  continue  to  like KKB's:  (i)  strong  orderbook,  (ii)  possible  upward  rerating  buoyed  by  its  O&G expansion,  and  (iii)  our  bullish  view  on  the  progress  of  Sarawak's  SCORE, especially  in  Bintulu-Samalaju.  Hence  we  maintain  our  BUY  recommendation  on KKB, with our RM1.75 FV unchanged.
 
Big  improvement  in  4Q.  As  we  had  expected,  KKB  Engineering  saw  a  strong improvement in the final quarter of FY12, chalking up a net profit of RM7.3m (>+100.0% q-o-q, +9.2% y-o-y). This rebound was mainly driven by the company's civil construction and steel  pipe  businesses.    Although  the  FY12  cumulative  net  profit  of  RM20.5m  was  below our earlier estimate for RM23.9m, we still deem the numbers largely within our forecast as we had earlier pointed out that the contribution of its recent book enhancements may not make significant impact on KKB's FY12 bottomline

Strong orderbook carried forward to FY13. KKB has been aggressively replenishing its orderbook  since  2HFY12  and  has  to  date  bagged  a  total  of  RM375.5m  jobs.  With  the strong orderbook carried forward to FY13, we are positive that the company would be able to  perform  better. Figure 1  at the  end of  this  report summarizes  the major  contracts  KKB has announced since July 2012.

O&G  catalyst  may  materialise.  As  highlighted  by  management  in  announcing  the company's 4Q results, the completion of  KKB's deepwater river-front fabrication yard  and jetty  facilities  would  allow  the  group  to  expand  further  into  O&G  fabrication  works  in  the near  future.  This  is  not  forgetting  KKB's signing of an MOU  with  Brooke  Dockyard  last year, although this JV has yet to be finalized. Nevertheless, any expansion in O&G would represent a positive rerating for the stock.

Bullish view on Sarawak theme. We continue to see strong growth in Sarawak as well as heightening  developments  in  the  new  future,  backed  by  the  Sarawak  Corridor  of Renewable Energy (SCORE) project. KKB's strong presence in Sarawak will allow it to ride on this boom as well as reap the benefits from the state's growth.

Maintain BUY, with RM1.75 FV unchanged. We had earlier advised investors to buy the stock on weakness and we are maintaining our BUY recommendation as well as retaining our  RM1.75  FV,  based  on  a  10x  FY13f  PER,  mainly  due  to  the company's:  (i)  strong RM375.5m  orderbook,  (ii)  possible  upward  rerating  due  to  O&G  expansion,  and  (iii)  our bullishness  on Sarawak's SCORE, especially in the  Bintulu-Samalaju  area  in  which  KKB has wide exposure. All these may serve to boost KKB's FY13 outlook.
Source: OSK
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