As expected, KKB Engineering (KKB) started its FY13 with a positive set of numbers. Its 1QFY13 net profit of MYR11.4m was well within our estimate  but slightly below consensus. The company’s outlook is turning brighter and we  continue to like KKB for its strong orderbook, increased possibilities of clinching O&G related contracts and our bullish view on SCORE. Maintain BUY, with our MYR1.75 FV unchanged.  

Well within estimates. KKB’s 1QFY13 net profit of MYR11.4m (+47.6% y-o-y, +55.5% q-o-q) was well within our estimate, making up 25.3% of our full year forecasts of MYR45m. Such promising results were mainly due to increased revenue from steel fabrication and civil construction divisions coupled with improved margin for its steel pipes manufacturing business. Its Engineering revenue improved by 126.3% y-o-y to MYR49.1m (1QFY12: MYR21.7m) and gross profit soared by 149.0% y-o-y to MYR12.7m (1QFY12: MYR5.1m). As for its Manufacturing sector, revenue declined by 50.6% to MYR15.2m (1QFY12: MYR30.8m) on weaker sales of liquefied petroleum gas (LPG) cylinders and steel pipes due to: i) lower offtake for LPG cylinders from Petronas Dagangan, and ii) the completion of its major contract to supply mild steel cement-lined pipes and pipes specials to the Bekalan Air Luar Bandar project in Sarawak and Sabah.

High margin fabrication  works recovered strongly. One of the key highlights to note is that sales of its high profit margin steel fabrication division has recovered strongly this quarter (+291.1% y-o-y) mainly on contribution from major structural steel work projects undertaken in Samalaju Industrial Park, Bintulu and Sibu, the supply of steel pipe piles for a bridge project in Sarawak and the supply of Low and High tension poles to Sabah.

Continue to stay bullish on Sarawak theme. We continue to see strong growth in Sarawak as well as heightening developments in the near future, backed by the Sarawak Corridor of Renewable Energy (SCORE) project. KKB’s strong presence in Sarawak will allow it to ride on this boom as well as reap the benefits from the state’s growth.

Source: RHB