KKB’s rebound on track

Business & Markets 2013
Written by AmResearch
Friday, 10 May 2013 10:37
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KKB ENGINEERING BHD []
(May 9, RM1.68)
Maintain buy at RM1.55 with a fair value of RM1.91: We maintain our
“buy” call on KKB Engineering with an unchanged fair value of RM1.91,
a 5% discount to our sum-of-parts value of RM2.
KKB posted a net profit of RM11.4 million in the first quarter ended
March of 2013 financial year (1QFY13) (+48% year-on-year [y-o-y],
+55% quarter-on-quarter [q-o-q], on the back of a sizeable increase in
engineering turnover (+126% y-o-y, +135% q-o-q). Earnings for 1Q
represent 20% of our full-year net profit forecast.
We consider the result in line with our expectations as KKB gets right
into its engineering jobs, most of which were secured only towards the
end of last year, in the quarters ahead. As expected, no interim dividend
was declared.
Its projected rebound from last year’s disappointing results is on track,
with engineering jobs accounting for 77% of its turnover at an intact
earnings before interest, tax depreciation and amorisation (Ebitda)
margin of 19.8%.
While manufacturing turnover fell (51 percentage points [pps]) y-o-y, 13
pps q-o-q), the division’s Ebitda margin more than doubled to 48% in 1Q
from 22.4% a year earlier (+14 pps q-o-q).
We believe this was partly contributed by the ongoing CONSTRUCTION [] of the water pipeline for the Sama Jaya Free
Industrial Zone in Kuching (a RM48 million contract).
As at March 31 this year, KKB’s outstanding order book stood at RM310 million, which will keep it occupied for the next 18
months. As at March 31, KKB had bid for RM226 million worth of projects in Sabah and Sarawak. It will also tender for
RM262 million worth of jobs in 2Q. We maintain our FY13F to FY15F forecasts and our annual new job assumption at RM300
million.
KKB’s earnings profile is poised for a significant change after its 43% owned associate Oceanmight Sdn Bhd recently
secured a three-year Petroliam Nasional Bhd approved supplier licence for the fabrication of oil and gas steel facilities.
KKB executive director Kho Pok Tong recently told The Edge weekly that it is eyeing the full range of fabrication jobs in the oil
and gas industry, including construction, installation and commissioning contracts.
In 2012, KKB more than tripled its yard capacity to 50,000 tonnes annually, making it the owner of one of the biggest
fabrication yards in the country. The 28.3ha yard in Kuching fronts Sungai Sarawak and is equipped with deep water jetty
facilities.
We continue to like the stock for its attractive dividend yield of 6% to 7%, aside from the blip last year. — AmResearch, May
9