KEY INVESTMENT HIGHLIGHTS

• KKB posted RM165.5m (+47.5%yoy) revenue in 3QFY19

• Construction and engineering segment had progressed well, with total revenue improved by +29.3%yoy to reach RM76.7m

• Revenue in steel fabrication was reported +81.4%yoy higher at RM72m

• Income visible for the next three years, supported by unbilled job at RM0.7b

• Earnings assumption raised by +43.5% for FY19F

• Maintain BUY, with TP unchanged at RM1.52

KKB Engineering posted RM165.5m (+47.5%yoy) of revenue in 3QFY19. Accordingly, the cumulative quantum was posted at RM403.0m in 9MFY19, growing at +49.3%yoy. For the quarter (3QFY19) under review, the group reported normalized PATANCI of RM12.4m (+>100%yoy), taking the cumulative number to RM21.1m (+>100%yoy) in 9MFY19. This was after deducting RM6.9m one-off gain, following the amicable settlement reached between KKB Builders (a wholly owned subsidiary of KKB Engineering) and Global Upline. Impressively, the normalized earnings were still ahead of our and consensus expectations, coming in at 143.8% and 130.5% respectively.

Engineering business had progressed well. During the quarter, the segment’s total revenue improved by +29.3%yoy to reach RM76.7m (3Q18: RM59.3m), resulting from higher progress billings of on-going projects. Pan Borneo Sarawak is huge contributor to income, which we expect to last until 2021. Other notable contributions came from the two projects under the Sarawak Water Supply Programme, which KKB has successfully clinched this year.

Revenue in steel fabrication was reported +81.4%yoy higher at RM72m, derived from EPCIC of Wellhead Platforms for D18 Phase 2 and four other oil & gas related fabrication works. Accordingly, we anticipated huge contribution from this segment towards the year end, as some of the works already approaching completion. We understand that KKB’s Ocean Might has been actively bidding for new contracts as it continues to strengthen its income base. Positively, Ocean Might is well recognized, an advantage which will support its long-term growth.

Income visible for the next three years. As at end September, the group’s unbilled job was RM0.7b in value with visibility until 1H2022. For the oil and gas segment, it made up the largest size in tender book at around RM355m. Going by our understanding, any awards from this segment would likely materialize in 1H20.

Source: MIDF Research - 14 Nov 2019