INVESTMENT HIGHLIGHTS

• Petronas project award proves KKB’s mettle

• Experience and track record counts

• Earnings supported by healthy orderbook

• Altogether, we maintain our BUY recommendation on a target price of 1.13 per share

Petronas project award proves KKB’s mettle. KKB Engineering Bhd’s 61.8% subsidiary OceanMight Sdn Bhd (OMSB) has secured a combined contract of RM226 million from Petronas Carigali Sdn Bhd for the provision of engineering, procurement, construction, commissioning of Wellhead Platforms for D18 Phase Two project. The contract is expected to run for duration of 27-months. However, the construction of the wellhead platforms will take only 15-months followed by 12-months of warranty period.

Experience and track record counts. KKB’s forte is in steel fabrication apart from construction. Its past experience includes commissioning services for the Tanjong Baram Wellhead Platform, the Engineering, Procurement and Construction (EPC) of the Wellhead Platform for Kinabalu Redevelopment Project and the EPC for Bunga Pakma Wellhead Riser Platform. In 2015, Talisman Malaysia Ltd.has awarded KKB with the Kinabalu Redevelopment Project. The project was completed on schedule in June 2017 with a meritable safety record of 1.3m man hours and zero lost time injury. Construction of the wellhead platform will take in-house at OceanMight’s 70 acres yard located less than 5km from Sarawak River Mouth with loadout capacity of up to 30,000mt of fabricated structure.

Earnings supported by healthy orderbook. We are assured that KKB’s healthy orderbook will support a stable outlook for FYE18/FYE19.Together with its construction orderbook of RM900m (70% of KKB-WCT JV) for Pan Borneo Highway in clinched late July 2016 we are convinced that KKB will be able to meet our estimated FYE19 revenue of RM224.2m and potential PATANCI of RM3.0m. KKB could possibly experience an improvement of revenue between the ranges +3.0% to +5.0% if the wellhead platform construction hits full-swing. But, due to warranty period of 12-months, revenue accretion from the Petronas’s award will not prompt an upward rerating.

Recommendation. We maintain our BUY recommendation for KKB with BUY and TP of RM1.13 per share. Our target price is based on a forward PBR19 of 1x, representing the average PBR over the past two years.

Source: MIDF Research - 8 Aug 2018