This article first appeared in The Edge Financial Daily on August 9, 2018
KKB Engineering Bhd
(Aug 8, 91.5 sen)
Maintain buy with a target price (TP) of RM1.13: KKB Engineering Bhd’s 61.8% subsidiary OceanMight Sdn Bhd (OMSB) has secured a combined contract of RM226 million from Petronas Carigali Sdn Bhd for the provision of engineering, procurement, construction and commissioning of Wellhead Platforms for the D18 Phase Two project.
The contract is expected to run for a duration of 27 months. However, the construction of the wellhead platforms will take only 15 months, followed by 12 months of warranty period.
KKB’s forte is in steel fabrication apart from construction. Its past experience includes commissioning services for the Tanjong Baram Wellhead Platform, the engineering, procurement and construction (EPC) of the Wellhead Platform for Kinabalu Redevelopment Project and the EPC for Bunga Pakma Wellhead Riser Platform.
In 2015, Talisman Malaysia Ltd has awarded KKB with the Kinabalu Redevelopment Project. The project was completed on schedule in June 2017 with a meritable safety record of 1.3 million man hours and zero lost time injury. Construction of the wellhead platform will take in-house at OMSB’s yard located less than 5km from the Sarawak River mouth with loadout capacity of up to 30,000 tonnes of fabricated structure.
We are assured that KKB’s healthy order book will support a stable outlook for financial years ending Dec 31 2018/2019 (FY18/FY19), together with its construction order book of RM900 million (70% of KKB-WCT Bhd joint venture) for Pan Borneo Highway clinched in late July 2016.
We are convinced that KKB will be able to meet our estimated FY19 revenue of RM224.2 million and potential profit after tax and non-controlling interest of RM3 million.
KKB could possibly experience an improvement of revenue between the ranges of +3% and +5%, if the wellhead platform construction hits full swing. But due to warranty period of 12 months, revenue accretion from the Petronas’s award will not prompt an upward rerating.
We maintain our buy recommendation for KKB with a TP of RM1.13 per share. Our TP is based on a forward FY19 price-to-book ratio (PBR) of 1 time, representing the average PBR over the past two years. — MIDF Research, Aug 8