INVESTMENT HIGHLIGHTS

• Three contracts awarded to KKB Engineering

• In total, its value sums to RM29m

• Positive on the news, casting positive sign on its nearterm prospect

• KKB will continue to participate in new tenders, in particular infrastructures and steel related works under the planned state Water Grid project

• Maintain BUY with an unchanged TP of RM1.47

Three contracts awarded to KKB Engineering. As announced on Bursa, one contract was clinched by its subsidiary, OceanMight Sdn Bhd, for the provision of engineering, procurement, construction and commissioning of New ESP Module for upgrading and modification on MAMPU-1 and AJK Platform for Vestigo Petroluem Sdn. Bhd. The other two contracts are related to the state Water Supply Grid System, for the supply of MSCL pipes as ordered by Mirecont Sdn Bhd and SKE Alliance Sdn Bhd.

In total, its value sums to RM29m. Consequently, it is expected to benefit KKB in FY19 until 1QFY20 with revenue recognized on progressive basis.

Positive on the news. The awards mark a progressive development for KKB, casting positive sign on its near-term prospect. Potentially, we see momentum to gradually intensify comes 2HFY19. By extension, biddings for projects have largely taken place in 1HFY19, which we opine will likely manifest in the latter half of this year. This is considering the effective validity of tender that is usually between 90 - 180 days. Moving forward, we understand that KKB will continue to participate in new tenders, in particular infrastructures and steel related works under the planned state Water Grid project.

No change to estimates. Following the announcements, we make no changes to our forecasts as the new jobs value falls within our estimation.

Maintain BUY. Our TP is left unchanged at RM1.47. The TP was arrived after pegging a PBV multiple of 1.1x to KKB’s FY20BVPS of RM1.35. The multiple ascribed is +1std higher than its 2-year average, which we think is justified given the up-cycle in Sarawak’s infrastructure outlook .The plethora of projects in the state has become a significant factor to our optimism, which has painted a positive macro view on the prospect of the state’s infra players. We have identified KKB Engineering as being one of the potential beneficiaries, with its toehold in steel pipe business expected to reap benefits from Sarawak water program. The downside risks to our call are (1) slower than expected progress in the construction division, and (2) a delay in state project awards.

Source: MIDF Research - 21 Jun 2019