INVESTMENT HIGHLIGHTS

• Award of contract to KKB for the supply and delivery of Concrete-Lined Mild Steel Pipes and Mechanical Couplings

• Outstanding order book currently stood at RM0.9b, giving 4x revenue cover

• The group’s prospect is heavily centred on the pending implementation of Sarawak Water Grid plan

• Maintain BUY with unchanged TP of RM1.13

Award of contract. Harum Bidang, a 90% owned subsidiary of KKB, has secured a supplemental contract from CMS Infra Trading (a unit of Cahya Mata Sarawak Berhad) with an estimated value of RM46.7m. The job scope is for the supply and delivery of Concrete-Lined Mild Steel Pipes and Mechanical Couplings to JKR Central Unallocated Store at Tanah Puteh, Kuching. The work order will be procured on “As and When Required Basis” with an expiry date on 31 August 2020.

Outstanding order book at RM0.9b. We estimate that KKB’s outstanding order book is currently at RM0.9b, providing 4x earnings visibility to FY17 earnings. Accordingly, the new addition of supplementary contract will strengthen its piping segment, which has been a key component to its business.

Financial results have been on positive trend. KKB has shown improvement in earnings results supported by its Pan Borneo Highway “PBH” and Wellhead Platform projects. In 3QFY18, we recall that PBH captured the largest share of revenue contribution at 88.9%. Accordingly, management expects the momentum to continue uninterrupted, which signals a positive trend in progress billings.

On Sarawak Water Grid plan. Moving forward, the group’s prospect is heavily centred on the pending implementation of Sarawak Water Grid plan, which will likely take its course soon. We recall that a sum of RM2.8b was allocated to fund a total of 247 water and waterrelated projects for implementation in the next two years.

No change to estimates. At this juncture, we make no changes to our estimates as the new contract value falls within our replenishment assumption. To date, the group has managed to clinch approximately RM285.4mil of new projects.

Maintain BUY. We maintain our BUY recommendation with an unchanged TP of RM1.13 as we think the risk-reward return embedded in KKB’s prospect is attractive. In the near term, KKB is expected to enter into open tenders worth approximately RM350m. The total sum is primarily a combination of Oil & Gas, water projects, and pipe supplies.

Source: MIDF Research - 21 Dec 2018