AmWatch - KKB Engineering : Secures jobs worth RM15mil, 21 Jul 2015

STOCK FOCUS OF THE DAY

KKB Engineering : Secures jobs worth RM15mil                 Buy

KKB has secured contracts totalling RM14.60mil to supply steel structures and liquefied petroleum gas cylinders. It announced yesterday it had accepted a purchase order from JGC (Malaysia) Sdn Bhd for the supply of fabricated steel structures for Tank 7 new jetty-PAF project for Petronas’ LNG Train 9 Project.

It also received a purchase order from Petron Malaysia Refining & Marketing Bhd for the supply of 14kg gas cylinders. KKB said the completion date for the supply of fabricated steel structures to JGC would be until the third quarter of 2016. The completion date for the supply of the gas cylinders is October 2015.  

Based on our estimates, these two contracts bring the total jobs secured so far this to over RM30mil. We maintain our new job assumption for the year at RM250mil for now. We believe that the group’s current outstanding order book amounts to over RM500mil, a third of which are for jobs in its traditional activities in the manufacture and supply of steel pipes.

KKB is one of our top picks among three Sarawak stocks, in view the impending state elections. We expect the state to start rolling out rural development projects ahead of the state elections. KKB will benefit from government expenditure in rural development, particularly in the supply of steel pipes for water projects.

The group’s earnings profile is anticipated to change significantly, given its foray into O&G support services via 42%-owned associate and Petronas-licensed services provider Oceanmight Sdn Bhd. Additionally, the group can count on the support of its 20% major shareholder CMS, a proxy for developments in the state. We maintain BUY on KKB, with an unchanged fair value of RM2.05/share – a 5% discount to our SOP of RM2.15/share.

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