We revisited KKB Engineering (KKB) after its share price exceeded our FY13-based  target price.  We  believe  that  the company’s  future  remains bright, buoyed by the upbeat outlook on Sarawak’s development and its possible  venture  into  the  oil  and  gas  (O&G)  sector.  We  revise  of  FV upwards  to  MYR2.28  as  we  roll  over  our  valuation  to  FY14F  P/E. Maintain BUY.

- KKB exceeded our target price. KKB shares had rallied strongly in the past  two  weeks  and  exceeded  our  FY13  target  price.  As  such,  we revisited the company to make necessary adjustments.

- More  contracts  in  the  pipeline.  The Group’s main  growth  node  is  still structural  steel  in  its  engineering  division. We  learnt that  KKB  is  bidding for  approximately  MYR230m  worth  of  contracts  including  both  structural steel  and  manufacturing  in  Sarawak  and  Sabah.  Nonetheless,  we  are keeping our forecasts unchanged at this juncture.

- O&G could be the next rerating catalyst.  We understand that KKB is continuously  scouting  for  O&G  opportunities  in  the  region  and  our sources  indicated  that  it  is  bidding  for  MYR100m-MYR150m  worth  of O&G-related contracts. Its associate company OceanMight SB has been licensed  by  Petronas  as  a  supplier  under  the  category  “Onshore Fabrication for Offshore Major Construction”. Any involvement in the lucrative O&G sector would be a positive rerating catalyst.

- Maintain BUY, FV revised upward. We are of the view that KKB’s future outlook  remains  bright,  buoyed  by  our  upbeat  view  on  the  Sarawak theme  and  its  possible  O&G  venture.  As  such,  we  are  maintaining  our BUY  recommendation,  but  with  our  FV  revised  upward  to  MYR2.28,  as we roll over our valuation to 10x FY14F P/E. Do note that we have yet to factor  in  earnings  from  any  potential  O&G-related  contracts  in  our forecasts.

Source: RHB