KUALA LUMPUR (July 27): Shares in KKB Engineering Bhd surged as much as four sen or 2.5% in the morning trading session after the company's joint venture (JV) with WCT Holdings Bhd secured a RM1.289 billion Pan Borneo Highway work package.

As market resumed trading in the afternoon session, the construction outfit's share pared it gains to three sen or 1.85%, as the stock traded at RM1.65 around 3.05pm. Trading volume was, however, thin at 405,900 shares.

The current price gives it a market capitalisation of RM425.36 million.

KKB Engineering told the stock exchange yesterday (July 26) that its JV with WCT had won a 51-month road main works contract for the Pan Borneo Highway in Sarawak worth RM1.289 billion.

The contract was for the construction of the stretch from Sungai Arip Bridge to Bintulu Airport junction.

Today, AmInvestment Bank Bhd raised its target price for KKB Engineering to RM2.10 per share from RM2 previously, and retained its "buy" call on the stock.

"KKB Engineering has surpassed our earlier RM200 million new order assumption for FY16," AmInvestment Bank Bhd analyst Thomas Soon said.

"We now assume further new orders of RM100 million for FY16, RM600 million (vs RM200 million previously) for FY17 and at RM200 million for FY18," he added.

Soon projects KKB Engineering's earnings before interest and taxes (EBIT) margin will stand at more conservative levels of 15% for FY16 and at 10% to 11% for FY17 and FY18, compared to an earlier projection of 20% to 30% previously.

This assumption was based on earnings before interest, tax, depreciation and amortisation (EBITDA) margin of 6% for KKB Engineering's 70% share in the contract.

The firm noted KKB Engineering posted an EBIT margin of 29% in FY15.

Having said that, Soon cut the firm's FY16 net profit forecast by 25% to RM25.7 million, to account for the lack of conventional jobs in the past six months.

However, he raised FY17's earnings forecast by 3% to RM42.1 million, and FY18's by 55% to RM41.3 million.

According to Soon, KKB Engineering has secured RM1 billion worth of contracts year to date including two ongoing platform fabrication jobs for Talisman that are scheduled to be completed by 3Q17.

"We expect its associate Oceanmight to secure an annual oil and gas (O&G) order replenishment of RM130 million for each of FY17 and FY18," he added.

Looking ahead, Soon believes KKB Engineering remains poised to supply guardrails, lamp posts and water steel pipes for the Pan Borneo Highway.