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This article first appeared in The Edge Financial Daily on November 22, 2018

KKB Engineering Bhd
(Nov 21, 93.5 sen)
Maintain neutral with a target price (TP) of 95 sen:
KKB Engineering Bhd’s third financial quarter ended Sept 30, 2018 net profit came in stronger at RM6.9 million (+39.4% year-on-year; +285% quarter-on-quarter [q-o-q]) primarily driven by better performances of its engineering and manufacturing divisions.

Year to date, the group has netted RM10 million in profit, which was above our and consensus full-year estimates at 123% and 185% respectively.

This is in stark contrast to the RM3.7 million loss registered for the similar period a year ago as profitability of the manufacturing and engineering divisions has improved markedly.

To recap, the group has secured three jobs so far this year, with the last two jobs said to have a total contract value of RM226 million and likely to have contributed to the earnings recovery.

As such, we have revised upwards our FY18 to FY20 earnings forecasts by 93%, 75% and 66% respectively after imputing higher profit margins and billing assumptions.

All told, we have maintained our “neutral” call and TP, pegged at about 0.9 times book value, suggesting a fair value of 95 sen.

Meanwhile, revenue more than doubled q-o-q, driven by the engineering and manufacturing sectors, which contributed RM99.8 million and RM12.4 million respectively.

Construction revenue was mainly contributed by the Pan Borneo Highway project, which commenced in the fourth quarter of 2016.

The group’s steel pipe division also delivered a higher revenue.

Correspondingly, group profit before tax increased by 55.7% to RM10.6 million due to higher margins for the manufacturing sector, in particular steel-pipe manufacturing, coupled with higher billings for the engineering and manufacturing divisions. — PublicInvest Research, Nov 21

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