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Friday, August 23, 2013

KKB Engineering - Fabrication Unit To Drive Growth


We revisited KKB following its stock rally and are positive on its buoyed outlook and its recently-awarded O&G fabrication license from Petronas. We fine-tune our projections, resulting in minor changes to our estimates. As its foray into the O&G value chain justifies a higher valuation, we also raise our target P/E to 12x from 10x FY14 EPS. Maintain BUY, with a higher FV of MYR2.74 (from MYR2.28).

- A busier year. KKB Engineering (KKB)’s shares have rallied strongly since April and are now trading close to our previous FV of MYR2.28. After looking into the group, we are again convinced that its business is picking up steam and its existing jobs will likely keep it busy in 2013.

- More to SCORE. The Sarawak Corridor of Renewable Energy (SCORE) is set to take the state’s economy to new heights, thereby creating many business opportunities for KKB. As it has already delivered many fast-racked SCORE-related projects, we assume a contract win rate of 30%. The projects it is bidding for, worth MYR430m (as of June), are believed to mainly involve fabrication and civil construction.

- The next re-rating catalyst. KKB has been aggressively scouting for oil and gas (O&G) opportunities after its associate company OceanMight SB became a licensed Petronas supplier under the category “Onshore Fabrication for Offshore Major Construction”. We expect the group to win MYR100m/MYR150m worth of O&G-related contracts in FY13F/FY14F, for which we estimate revenue recognition of MYR150m in FY14.

- Reiterate BUY, with a higher FV. KKB’ prospects remain bright, buoyed by the upbeat outlook on its O&G venture as well as SCORE. We had fine-tuned our estimates after a change in assigned coverage, but our adjustments to its earnings were minor. Meanwhile, we maintain our BUY recommendation but bump up our FV to MYR2.74, from MYR2.28, as we raise our valuation to 12x FY14F P/E (from 10x), after factoring in its venture into the lucrative O&G sector.

Source: RHB

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