KKB’s prospects seen centred on Sarawak project

This article first appeared in The Edge Financial Daily, on December 27, 2018.
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KKB Engineering Bhd
(Dec 26, 84 sen)
Maintain buy with an unchanged target price (TP) of RM1.13:
Harum Bidang, a 90%- owned subsidiary of KKB Engineering Bhd (KKB), has secured a supplemental contract from CMS Infra Trading (a unit of Cahya Mata Sarawak Bhd) with an estimated value of RM46.7 million.

 
The job scope is for the supply and delivery of concrete-lined mild steel pipes and mechanical couplings to JKR Central Unallocated Store at Tanah Puteh, Kuching.

The work order will be procured on “as and when required basis” with an expiry date on Aug 31, 2020.

We estimate that KKB’s outstanding order book is currently at RM0.9 billion, providing four times earnings visibility to financial year 2017 earnings.

Accordingly, the new addition of supplementary contract will strengthen its piping segment, which has been a key component of its business.

KKB has shown improvement in earnings results supported by its Pan Borneo Highway (PBH) and Wellhead Platform projects.

In the third quarter of financial year 2018, we recall that PBH captured the largest share of revenue contribution at 88.9%.

Accordingly, management expects the momentum to continue uninterrupted, which signals a positive trend in progress billings.

Moving forward, the group’s prospects are heavily centred on the pending implementation of the Sarawak Water Grid plan, which will likely take its course soon.

We recall that a sum of RM2.8 billion was allocated to fund a total of 247 water and water-related projects for implementation in the next two years.

At this juncture, we make no changes to our estimates as the new contract value falls within our replenishment assumption.

To date, the group has managed to clinch approximately RM285.4 million of new projects.

We maintain our “buy” recommendation with an unchanged TP of RM1.13 as we think the risk-reward return embedded in KKB’s prospects is attractive.

In the near term, KKB is expected to enter into open tenders worth approximately RM350 million. — MIDF Research, Dec 21