KKB’s  latest  water  pipe  supply  order  worth  MYR227m  exceeded  our original assumption of its new pipe order. However, we are still awaiting more contract  wins from  its civil construction and  fabrication  division, including  O&G  fabrication  jobs  which  typically  enjoys  better  margin. While its share price has doubled YTD, we prefer to keep our NEUTRAL call and MYR2.74 FV, pending more potential contract wins.

• MYR227m  pipe  supply  order.  KKB  Engineering  (KKB)  subsidiary, Harum Bintang SB,  on 28 Nov 2013  was awarded a  MYR227m  supply order  of  mild  steel  pipes  and  pipe  specials  by  CMS  Infra  Trading  SB (CMSIT)  on  an  “as-and-when-required”  basis.  This  is  the  second  pipe order  by  CMSIT,  the  first  one  being  a  two-year  MYR74.4m  contract awarded in September 2012. The completion date of this additional order is expected to be in May 2015.
• Good news indeed. With only some of KKB’s  existing  jobs expected to spill over  into 2014, this new contract  came in  time to replenish its fastdepleting  orderbook.  In  addition,  the  quantum  of  the  new  order  far exceeded  our  new  pipe  order  estimate  of  merely  MYR50m  next  year. We  reckon  that  the  pipe  supply  contract  is  for  the  proposed  Tanjung Manis  water  supply  project,  making  this  another  milestone  in  KKB’s participation  in  the  Sarawak  Corridor  of  Renewable  Energy  (SCORE). That said, KKB still  has not secured any  new  jobs in  the  fabrication and civil construction division,  which typically enjoy better margin. Therefore, we prefer to keep our original estimates for now.
• Reiterate  NEUTRAL.  Besides  potential  contract  wins  in  general fabrication and civil construction works, KKB  is hopeful of  winning O&G fabrication  contracts  after  its  associate,  OceanMight  SB,  became  a licensed Petronas  supplier. Nonetheless,  as  its share price has almost doubled YTD (before it secures any O&G jobs),  we prefer to  monitor the company’s  developments  closely  and  maintain  our  NEUTRAL recommendation  on  KKB  for  now.  Our  MYR2.74  FV  is  derived  from  a 12x FY14F P/E.

Recommendation Chart

Source: RHB