KKB Engineering Bhd
(Sept 14, RM1.52)
Maintain buy call with an unchanged fair value of RM2.05: We earlier pegged a 5% discount to a sum-of-parts value of RM2.16 per share. 

KKB last Friday announced its 43% directly-owned associate OceanMight Sdn Bhd had secured a well head platform fabrication contract with Talisman for the latter’s Kinabalu redevelopment project. 

The engineering, procurement and construction contract is scheduled to be completed by the second quarter of 2017 (2Q17). The contract sum was not made known. 

KKB also announced awards from Syarikat Sesco Bhd for the annual supply of steel products (by 3Q16) and from Sarawak Energy Bhd for the supply and commissioning of a 1,000-tonne fuel storage tank for a power station (by 1Q16). 

KKB said all three contracts were worth a total of RM171.1 million. 

This is KKB’s first major fabrication job. It bodes well for its prospects and is a testament to its capabilities in the big league of oil and gas (O&G) fabrication. 

The Kinabalu platform is reportedly located in a high-pressure, high-temperature zone, requiring fabricators to be from the top tier.

Taking into account the better-than-expected first half of financial year ending Dec 31, 2015 (1HFY15) results and this latest development, we have revised upwards our forecast FY15 (FY15F) earnings by 6%. 

At the same time, we have cut our conventional job assumption for FY15F to RM80 million from RM250 million previously. 

Our new order assumptions for FY16F and FY17F are now at RM200 million each versus RM250 million and RM280 million, respectively, previously. 

Post its recent 2QFY15 results, it still had an outstanding order book of about RM30 million.

We maintain our new O&G fabrication order assumption for OceanMight at RM150 million each for FY15F and FY16F. 

Following this latest contract, OceanMight’s tender book stands at about RM150 million. 

We believe other tenders are being pursued to the tune of another RM120 million. KKB itself is aggressively pursuing jobs within Sabah and Sarawak. 

From its approximately RM25 million maiden well head platform job that was completed in April, we gather that such fabrication jobs would have a significant positive earnings impact at the operating level. — AmResearch, Sept 14

This article first appeared in digitaledge Daily, on September 15, 2015.