INVESTMENT HIGHLIGHTS

• Earnings beyond expectations, accounting for 126.0% of our estimate

• Higher revenue realized from Pan Borneo Highway (PBH)

• Steel fabrication supported by Petronas projects

• Exclusive prospect in Sarawak seems promising

• We revised our earnings higher to make allowance for better progress rate and margin improvement

• Downgrade to NEUTRAL due to recent price rally while adjusted TP higher to RM1.22

Earnings beyond expectations. KKB’s 4QFY18 PATAMI came in strong at RM17.6m (+>100%yoy). As a result, its 12MFY18 earnings came in ahead of ours and consensus’ expectations at 126.0% and 118.8% respectively. Main contributor was the significant improvement in both steel fabrication and civil construction contributions.

Higher revenue realized from Pan Borneo Highway (PBH). In 4QFY18, the group’s operating revenue was significantly higher compared to last year, rising by +103.1%yoy to RM142.5m. Revenue contributions were largely driven by engineering and construction sector, which made up 91.0% of the quarterly aggregate. The segment was supported by PBH package, which we expect to continue this year.

Steel fabrication supported by Petronas projects. The significant rise in revenue was also backed by steel fabrication division. In 4QFY18, its revenue grew >100% to RM61.8m. Notable projects which command significant share were the EPCIC of Wellhead Platforms for D28 Phase 1 project as well as the two newly commenced jobs (of similar scope) for Petronas Carigali and Mubadala Petroleum.

Exclusive prospect in Sarawak. We expect the group’s engineering and construction division to continue driving its earnings, on the back of PBH’s progress rate. Going ahead, we believe that optimism is on the rise for Sarawak state-development plan. KKB is likely to be the beneficiary of state water projects, considering its long track record in the piping and steel business. We learned from a source that RM2.8b was allocated to fund a total of 247 water and water-related projects in Sarawak for implementation within the next two years.

Source: MIDF Research - 27 Feb 2019