This article first appeared in The Edge Financial Daily on April 17, 2019

KKB Engineering Bhd
(April 16, RM1.24)
Maintain buy with an unchanged target price (TP) of RM1.35: KKB Industries (Sabah), a subsidiary of KKB Engineering Bhd (KKB), has received a purchase order from Leadshine Sdn Bhd for the supply and delivery of concrete-lined mild steel pipes. In the same announcement, KKB was awarded the tender for an annual supply and delivery of steel products from Syarikat Sesco Bhd. Together, the contracts will contribute positively to KKB’s pipe manufacturing business.

Both contracts totalled RM17.8 million, adding to KKB’s outstanding order book which, as of December 2018, stood at RM900 million. Hence, the current unbilled job will keep KKB busy until 2021. So far in 2019, KKB has replenished its order book with sizeable contracts, including the award from Jabatan Bekalan Air Luar Bandar Sarawak. These are water-related contracts of various scope amounting to RM110.8 million.

The state water project is worth RM2.8 billion. Accordingly, KKB’s tender book will likely expand as bids for tenders could intensify during the year, in respect of a proper water system needed in identified stress areas. For financial year 2019 (FY19), the assumption for new jobs that we ascribed is approximately RM250 million.

We maintained our “buy” recommendation on KKB with an unchanged TP of RM1.35, as we reckoned the risk-reward embedded in KKB’s prospects is attractive. In the near term, KKB is expected to bid for more open tenders of projects to be rolled out, particularly by the Sarawak state government. — MIDF Research, April 16