INVESTMENT HIGHLIGHTS

• KKB has received a letter of award from Petronas Dagangan

• A similar contract was awarded by Petronas to Edisi Optima Sdn Bhd, a KKB’s associate company

• KKB benefiting from water grid jobs

• Contract periods range from nine months up to three years

• Outstanding orderbook stood at RM0.9b

• Maintain BUY with adjusted TP of RM1.35

KKB has received a letter of award from Petronas Dagangan Berhad (“Petronas”) for the price agreement for new and refurbishment of LPG cylinders. The job scope includes fabrication and reconditioning of LPG cylinders as well as the supply and delivery of LPG compact valves.

A similar contract was awarded by Petronas to Edisi Optima Sdn Bhd, a KKB’s associate company. The letter entails the price agreement for refurbishment of LPG Cylinders for requalification and shot-blast repainting. We understand that the job awarded to Edisi Optima, fell within its scope of expertise as the company is a Petronas registered company to provide requalification services for used LPG cylinders.

Another contract from Water grid Programme. The group has also received a purchase order from Laras Jaya Engineering Sdn Bhd (“LJE”) for the supply of mild steel concrete lined (“MSCL”) pipes for Sarawak Water Supply Grid Programme – Stressed Areas.

Contract period. Both Petronas contracts are effective from 15 March 2019 and its validity extends for a three-year period (“Contract Period”), unless terminated earlier with an option to extend the contract period for a further period up to two (2) year(s). As for the Water Grid project, the progress is set to run for nine months.

Outstanding ordebook stood at RM0.9b. In entirety, all contracts sum to approximately RM30.8m. That amount adds up to RM0.9bn worth of unbilled jobs for KKB which equates to 2x visibility to income.

Could the wait be worth your while? As announced, the state water project is worth approximately RM2.8bn. The budget for phase 1 is undisclosed, while a target completion has been set not that far in sight. Accordingly, KKB’s tenderbook will likely expand as the bids for tender could likely intensify during the year. For FY19, the new jobs assumptions we ascribed is approximately RM250m.

Source: MIDF Research - 21 Mar 2019