KKB to leverage on associate to win more O&G contracts - MIDF

-A +A

KUALA LUMPUR (Sep 9): MIDF Amanah Investment Bank Bhd says it sees KKB Engineering Bhd (KKB) leveraging on its associate Ocean Might Sdn Bhd’s connections to win more sizeable oil and gas (O&G) subcontracts.

In a note today, MIDF analyst Kelvin Ong of MIDF said Ocean Might's recently secured RM14.5 million O&G support services contract for the Tanjong Baram wellhead platform would serve to strengthen KKB's presence in the sector.

Ong said: “We reckon this will be a positive breakthrough contract for its associate and the group itself as it will strengthen its presence and positioning in the O&G industry whilst opening doors of opportunities to secure more contracts in future.”

However, Ong said the contract would have minimal impact on KKB's earnings for its financial year ending December 31, 2014.

“We are neutral on the contract award as we anticipate losses at associate level (Ocean Might) to be reduced to RM0.5 million with the earnings from the contract, hence a minimal impact to group earnings in FY14,” he said.

Ong said earnings from the Tanjong Baram contract was expected to cover Ocean Might’s losses in 1HFY14 due to administrative expenses and absence of projects.

Ong maintained MIDF's earnings forecast for KKB, at this juncture, while reaffirming the research firm's “buy” rating on KKB shares at an unchanged target price of RM2.84.

“Our TP of RM2.84 is based on FY15 sum-of-parts valuation. Its valuation implies an undemanding FY15 price earnings ratio of 11 times and we recommend investors to accumulate this stock,” said Ong.