KEY INVESTMENT HIGHLIGHTS

• KKB Engineering registered revenue of RM156m (+9.5%yoy) in 4QFY19 with cumulative FY19 quantum of RM559m (+35.5%yoy)

• KKB’s engineering segment outperformed in 4QFY19

• Manufacturing sector reported +76.6%yoy growth in revenue to RM22.6m

• Downgrade to Neutral from BUY due to recent price rally with revised TP of RM1.90

KKB Engineering registered revenue of RM156m (+9.5%yoy) in 4QFY19. The growth in revenue was attributable to higher revenue recognition from the Civil Construction and Steel Pipes manufacturing divisions within the Engineering and Manufacturing sector. As for FY19 revenue, the group booked RM559m, higher by +35.5% compared to RM412.5 million achieved in the previous year. KKB’s 4QFY19 PATANCI came in strong at RM20.3m (+>100%yoy). As a result, FY19 earnings came in ahead of ours and consensus’ expectations at 189.5% and 203.0% respectively.

KKB’s engineering segment outperformed in 4QFY19 due to higher gross profit margin and progress billings from ongoing projects. We note that the contribution came from (1) on-going Pan Borneo Highway project (Phase 1 Works Package Contract–WPC-09), (2) two Construction projects secured in FY19 from Jabatan Bekalan Air Luar Bandar Sarawak and (3) all associated works from Summer Mall Junction to existing Tambirat BPS, Samarahan Division (Package 1C) implemented under the Sarawak Water Supply Grid Programme. The revenue under this sector increased by +2.9% to RM133.4m compared to RM129.7m in 4QFY18 while gross profit jumped 80.2% from RM21.2m to RM38.2m on the back of higher profit margin from the Steel Fabrication and Civil Construction divisions.

Manufacturing sector reported a growth in revenue of RM22.6m, representing a +76.6%yoy hike on the back of massive improvement in steel pipes manufacturing division under the two subsidiary companies operated in Sarawak and Sabah. It is worth noting that, the supply of Steel Pipes to Jabatan Bekalan Air Luar Bandar Sarawak for the Sarawak Water Supply Grid Program and other ad-hoc customers in Kota Kinabalu, Sabah has enabled the Group to booked a revenue of RM20.3m in 4QFY19 compared to RM9.2m in 4QFY18 under steel pipes manufacturing division.

Source: MIDF Research - 19 Feb 2020