INVESTMENT HIGHLIGHTS

• Award of contracts under State Water Grid Programme

• Outstanding order book currently at RM0.9b, providing more than 2x revenue cover

• Commendable performance in FY18, a positive sign

• Upgrade to BUY with higher TP of RM1.33

Award of contracts. Jabatan Bekalan Air Luar Bandar Sarawak (JBALB) has awarded KKB Engineering (KKB) with two contracts, which were previously tendered under Sarawak Water Supply Grid Programme. The details on job scope (of each contract) are as below: A) Design, Construction, Completion, Testing and Commissioning of Proposed Package SR1 (Southern Region) for Sarawak Water Supply Grid Programme –completion in 21 months B) Construction and Completion of MSCL Pipeline and All Associated Works for Sarawak Water Supply Grid Programme – completion in 12 months Whilst the breakdown on values (for each contract) was not mentioned, it sums to a sizeable amount of RM110.8m. It is expected to contribute positively to the group’s earnings until FY20.

Outstanding order book stood at RM0.9b. As of last fiscal year, the group’s orderbook stood at RM0.8b. In recognition of these new contracts, we arrived to a sum worth RM0.9b for current unbilled jobs. Positively, this provides more 2x earnings visibility to the group.

Commendable performance in FY18. In 12MFY18, we noted that the group’s earnings have far exceeded our and market estimates. Its revenue was seen growing by a whopping +97.1%yoy, to RM412.5m. The contribution was largely made up of construction and steel fabrication segments, derived from Pan Borneo Highway and Wellhead Platform jobs. Accordingly, the growth in revenue was well reflected on PAT, which has staged six-fold increase to RM23.0m (vs RM3.3m in FY17). Moving forward, we expect its business outlook to remain in positive light predicated on robust orderbook and potential new wins in the near term.

Source: MIDF Research - 1 Mar 2019