KKB posted 2QFY13 net profit of MYR12m, with annualised 1H earnings well  within  our  but  marginally  below  consensus  estimates.  We  remain bullish on KKB as: i) its existing orderbook will keep it busy for the rest of  2013,  ii)  SCORE-related  projects  are  likely  to  gain  momentum, creating  more  job  opportunities,  and,  iii)  the  fabrication  license  by Petronas  suggest  O&G  jobs  soon.  Maintain  BUY  on  KKB,  with  FV  of MYR2.74 derived from 12x FY14 P/E.

- On  track.  Following  a  decent  start  to  2013,  KKB  posted  net  profit  of MYR12m  in  2Q,  +5.2%  q-o-q  and  +222.8%  y-o-y.  Its  annualized  1H13 earnings  were  well  within  our  estimates  but  marginally  below  street expectation.  We  are  relieved  that  job  recognition  in  its  steel  fabrication and  construction  divisions  had  regained  steam,  although  there  is  room for  improvement  in  terms  of  margins.  Meanwhile,  the  manufacturing division recorded a 15.4% increase in revenue, mainly from the sales of steel pipes, while its profit margin was impressive on the back of higher plant utilization and with prudent cost management. 

- Job delivery  extended into 2H. While Management gave no guidance on  KKB’s  latest  unbilled  sales,  we  reckon  the  amount  to  be  more  than MYR250m  as  at  end-June.  Meanwhile,  the  company  is  busy  delivering structural  steel  and  cladding  works  for  Pertama  Ferroalloys  SB  worth MYR171m.  This,  together  with  other  existing  projects,  will  likely  keep KKB busy for the remainder of 2013, with part of the works spilled over to  next  year.  The group’s existing  pipes  contracts  may  also  keep  its manufacturing unit fairly busy for the next couple of quarters.

- Reiterate  BUY.  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-tracked SCORE-related projects, we assume a contract win rate of 30% from  its  bidding  of  MYR430m  (as  of  June).  Apart  from  that,  KKB  has been  aggressively  scouting  for  oil  and  gas  (O&G)  opportunities after  its associate  company  OceanMight  SB  became  a  licensed  fabricator  of Petronas  and  thus  contract  wins  are  expected  anytime  now.  That  said, we maintain our BUY call on KKB, with our FV at MYR2.74, derived from 12x FY14F P/E, a slight discount to pure O&G players.

Source: RHB