KKB Engineering : Returns to black with small profit in 2QFY16 BUY

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KKB Engineering : Returns to black with small profit in 2QFY16     BUY

We maintain BUY on KKB, with an unchanged SOP fair value of RM2.10/share, at an implied PE of 13x FY17F. KKB eked out a 2QFY16 net profit of RM0.4mil, bringing the 1HFY16 loss to RM1.6mil. This followed three consecutive quarters of losses at RM2mil-RM4mil each. As expected, no interim dividend was declared. We maintain our numbers for now. While 1HFY16 was below expectation, it was not totally unexpected. This was mainly due to the lack of conventional jobs secured. We expect improvements to be made from 3QFY16 onwards, particularly from the recently-secured RM1.3bil, 66-km Pan Borneo Highway package and two oil and gas platform fabrication contracts with Talisman. We understand that the fabrication of the 3,700-tonne wellhead riser platform and a 350-tonne bridge, which started in April, is now in full gear. The second platform fabrication job, which was secured in May, is still in the design stage and will only contribute meaningfully from 4QFY16. The fabrication jobs are scheduled to be completed by mid-2017 and 3Q17, respectively. KKB's JV with WCT secured the 51-month Pan Borneo highway package job late last month. KKB's 70% share of the contract amounts to ~RM900mil. Work may only begin in earnest by 4QFY16.

Excluding the highway job, KKB's outstanding order book, including the wellhead platform fabrication contracts, totalled ~RM230mil as at end-June 2016 and will last until 3QFY17. The tender book now stands at ~RM155mil (including RM100mil for O&G fabrication).

We expect further new orders of RM70mil for conventional activities for FY16F, RM600mil (including sub-contracts for water pipes, guardrails and bridge piles for Pan Borneo) for FY17F and RM200mil for FY18F. For KKB's oil and gas associate Oceanmight, we maintain our annual order replenishment of RM130mil for each of FY17F and FY18F. Mitigating any downside risks is the group's net cash position of RM110.4mil as at end-June vs. RM139mil as at end-March 2016.

KKB is pursuing various projects, particularly those related to the social-infrastructure works for steel fabrication and water supply in Sarawak and Sabah. It continues to seek opportunities in major onshore fabrication jobs, in collaboration with Oceanmight and other strategic partners.

Others :

Petronas Gas : Slight Sabah adjustment and higher operating costs          HOLD

Petronas Chemical : Lower product price outlook on softer crude oil        HOLD

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