KEY INVESTMENT HIGHLIGHTS

• Bags RM53m water supply job in Kuching, Sarawak

• Duration of contract is 16 months

• Current outstanding order book approximately RM888m

• Job wins YTD totaled RM338m

• No changes to our earnings estimates

• Maintain BUY with unchanged TP of RM1.90

Bags RM53m water supply job in Kuching, Sarawak. KKB Engineering Berhad has received RM53m contract award by Kuching Water Board (KWB) for the Proposed Construction, Completion and Commissioning of Water Supply from Jalan Batu Kawa/Matang to and fro Matang Mid-Level Reservoir for Sarawak Water Supply Grid Program.

Duration of contract. The contract period for the water supply job is sixteen months, commencing from May FY20 and subject to the final approval by the state government.

Current outstanding order book approximately RM888m. The Group’s order book stood at RM835m as of April FY20. In recognition of this new contract worth RM53m, we arrived to a sum worth RM888m for KKB’s outstanding order book. Moreover, it is worth noting that the new water supply job contract will strengthen its water-related infrastructure construction segment.

Job wins this year. Year-to-date, KKB has been awarded four contracts (based on Bursa’s announcement) worth RM338m, i.e. the contracts from Petronas Carigali Sdn Bhd, PTTEP Sarawak Oil Limited, Sarawak Energy Berhad and Kuching Water Board.

Earnings estimates. The new water supply job contract is expected to contribute positively to the earnings and net assets of KKB for the duration of the contract. However, we make no changes to our earnings estimates as the value of the new job secured is within our contract replenishment assumptions.

Maintain BUY with unchanged target price of RM1.90. Moving forward, we consider the prospect of KKB business to be exciting, fuelled by the potential roll out of Sarawak infrastructure packages. Downside risks include supply chain disruptions due to the current CMCO implementation. We pegged our valuation to 17x, or +1SD of 1- year historical PER of FY20 EPS, to reflect the group’s growth prospect in the engineering segment thus a TP of RM1.90.

Source: MIDF Research - 5 May 2020