KNM Group; Hold;
Price target: RM0.55; KNMG MK

The management expects FY12 to be a turnaround year and growth is likely to continue going forward in view of its cost optimisation and selective order intakes to improve on its profit margins. KNM is also rationalising its operations in Americas which has dragged the group’s financial performance in 9M12. Its order book stands at RM1.9bn (as of Oct12), of which close to 70% of the orders are contributed by its European subsidiaries. Meanwhile, tender book remains healthy at RM19bn. The management will continue to pursue projects with better profitability to grow its bottom line.

For its Peterborough waste-to-energy project in the UK, it is likely to commence Phase 1 in FY13 which entails GBP233m investment for 35MW facilities. KNM is looking to conclude its financial arrangement with the banking institutions by year-end. We understand that the project will take up to 4 years to complete before contributing with a potential recurring revenue of c.RM200m annually.

Meanwhile, management is sanguine on its prospects in Petronas’ Refinery & Petrochemical Integrated Development as there will be huge addressable market of process equipments for KNM to tap. Nevertheless, we believe that contract awards are likely come by FY14, at the earliest.

We maintain our HOLD rating with RM0.55 TP. We believe there is no near-term re-rating catalyst for the counter given the weak external outlook. However, the (proposed) listing of its wholly-owned subsidiary, Borsig, in Singapore by 2H13 could rerate the counter.

Source: HwangDBS Research - 23 Nov 2012