Maybank IB ups target price for KNM to RM1.50 on RAPID job win

by **Cals** Fri 08 Aug 2014, 17:35

Business & Markets 2014

Written by Ahmad Naqib Idris Adzman Shah of theedgemalaysia.com

Friday, 08 August 2014 11:10
KUALA LUMPUR (August 8): Maybank Investment Bank Bhd (Maybank IB) has raised its target price (TP) to RM1.50 from RM1.00 while maintaining its “outperform” call on KNM Group Bhd after the group announced a US$1.33 billion contract win by its unit and its bidding partner.
KNM announced yesterday that its unit, KNM Process System Sdn Bhd and its bidding partner SINOPEC Enginnering (Group) Co Ltd have received a letter of award worth US$1.33 billion from PRPC Refinery and Cracker Sdn Bhd, a subsidiary of Petroliam Nasional Bhd (Petronas).
The group said that the award was in respect to an engineering, procurement, construction and commissioning contract of one package relating to Petronas’ Refinery and Petrochemical Integrated Development (RAPID) project.
“While not stated in the Bursa announcement, we believe that KNM’s effective portion is circa US$280 million. Works are likely to start in early 2015, over 2 years. This is positive development for KNM,” the research house said in a note today.
Quoting market sources, Maybank IB added that KNM also has exposure to other packages such as CITC, Technicas, Reunidaf, Petrof and Toyo, which had won the other four RAPID-related packages.
“In total, we expect KNM to secure about US$800 million- US$1 billion worth of jobs from RAPID alone over the next 3 years (2015-17). We expect subsequent contract flows on RAPID works over the next few months, in favour of KNM,” said Maybank IB.
The research house has adopted the backlog-based valuation on the stock, similar to other cyclical, order-driven oil and gas stocks under its coverage, to best reflect KNM’s prospects.
The research house has raised its earnings forecast for KNM Group Bhd for 2015 and 2016 by 44% and 40% respectively, as the research house expects higher backlog orders over the two years.
“For this, we have raised our TP to RM1.50 (+50sen), based on 0.7x EV/backlog multiple for 2015. The 0.7x reflects its 3-year historical threshold,” it said.