STOCK FOCUS OF THE DAY
KKB Engineering : Pipes to hold fort in medium term, hope on
O&G HOLD
We maintain HOLD on KKB Engineering with a lower unchanged
fair value of RM2.50/share – a 5% discount to our SOP value of RM2.63/share.
KKB yesterday announced a 2QFY14 net profit of RM7.6mil (-37% YoY; +100% QoQ),
bringing the 1HFY14 total to RM11.4mil (-51% YoY) which was below expectations.
No dividend was declared.
The 1H earnings represent only 20% and 25% of our and consensus
forecasts, respectively. Revenue accounted for 31% of our forecast. While a
significant improvement QoQ, the 2Q performance could not make up for the
shortfall. The current outstanding order book stands at ~RM250mil, which will
last the next 12 months. We understand that as at end-June, its O&G
associate Oceanmight had tendered for ~RM790mil worth of jobs. The bids for the
traditional segments (engineering and manufacturing) stand at ~RM91mil.
News on some of the bids will likely emerge within this half
of the year. We can expect more tenders to be undertaken during the course of
the second half. For 1HFY14, the engineering division performed in line with
expectations, with revenue making up 50% of our forecast, while EBITDA margin
rose by 5ppts QoQ and 13ppts YoY. Contributions came mainly from the
fabrication of structural steel works for the Petronas LNG Train 9 and the
SAMUR projects. Both these projects, collectively valued at ~RM50mil, are
scheduled to be completed by year-end. Pipes’ 1HFY14 revenue lagged behind, at
only 27% of our full-year estimate.
We believe the bulk of manufacturing contributions came from
the RM227mil pipe supply contract with CMS Infra. The contract is expected to
be completed by 3Q15. We believe there might be VOs that would raise the value
of the contract. In its note, KKB said as a result of lower volumes and
increasing costs, the board is “cautious” that the group’s outlook for the
remaining part FY14 will prove to be challenging. We maintain our numbers for
now.
NEWS HIGHLIGHTS
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Malaysian Airline System : Trading of shares to be halted
today
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