We  revisited  KKB  following  its  stock  rally  and  are  positive  on  its buoyed  outlook  and  its  recently-awarded  O&G  fabrication  license  from Petronas.  We  fine-tune  our  projections,  resulting  in  minor  changes  to our  estimates.  As  its  foray  into  the  O&G  value  chain  justifies  a  higher valuation,  we  also  raise  our  target  P/E  to  12x  from  10x  FY14  EPS. Maintain BUY, with a higher FV of MYR2.74 (from MYR2.28). 
 
- A  busier  year.  KKB  Engineering (KKB)’s  shares  have  rallied  strongly since  April  and  are  now  trading  close  to  our  previous  FV  of  MYR2.28. After looking into the group, we are again convinced that its business is picking up steam and its existing jobs will likely keep it busy in 2013.

- More to SCORE. The Sarawak Corridor of Renewable Energy (SCORE) is set to take the state’s economy to new heights, thereby creating many business  opportunities  for  KKB.  As  it  has  already  delivered  many  fast-racked SCORE-related projects, we assume a contract win rate of 30%. The projects it is bidding for, worth MYR430m (as of June), are believed to mainly involve fabrication and civil construction.  

- The next re-rating catalyst. KKB has been aggressively scouting for oil and  gas  (O&G)  opportunities  after  its  associate  company  OceanMight SB  became  a  licensed  Petronas  supplier  under  the  category  “Onshore Fabrication for Offshore Major Construction”. We expect the group to win MYR100m/MYR150m  worth  of  O&G-related  contracts  in  FY13F/FY14F, for which we estimate revenue recognition of MYR150m in FY14.  

- Reiterate BUY, with a higher FV. KKB’ prospects remain bright, buoyed by  the  upbeat  outlook  on  its  O&G  venture  as  well  as  SCORE. We  had fine-tuned  our  estimates  after  a  change  in  assigned  coverage,  but  our adjustments  to  its  earnings  were  minor.  Meanwhile,  we  maintain  our BUY recommendation but bump up our FV to MYR2.74, from MYR2.28, as we raise our valuation to 12x FY14F P/E (from 10x), after factoring in its venture into the lucrative O&G sector.

Source: RHB