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This article first appeared in The Edge Financial Daily on May 17, 2018

KKB Engineering Bhd
(May 16, 94.5 sen)
Maintain neutral with a target price (TP) of 95 sen:
KKB Engineering Bhd’s first quarter of financial year 2018 (1QFY18) net profit came in at RM1.3 million  (>100% year-on-year [y-o-y]; -74.8% quarter-on-quarter [q-o-q]), which was lifted mainly by “gain on remeasurement in former associate” Oceanmight Sdn Bhd, amounting to a pre-tax profit of RM1.9 million. Excluding the one-off gain, the core net loss for the group is estimated at RM529,000. However, we believe the group’s subsequent quarters should see earnings recovery, underpinned by new oil and gas jobs clinched recently.

 

The group secured one contract in March and another one which was just announced on Tuesday. However, no contract value has been disclosed for these two contracts as yet. The key revenue driver during the quarter again was from its construction division (mainly from the Pan Borneo Highway project), which commenced in 4QFY16. All told, we maintain our “neutral” call and TP pegged at around 0.9 times to book value, suggesting a fair value of 95 sen.

Key revenue drivers are again from the engineering and manufacturing sectors, which contributed RM51.2 million and RM13.4 million respectively. Revenue during the quarter improved 50.4% y-o-y due to increase in the group’s steel pipes and liquefied petroleum gas cylinders manufacturing divisions and civil construction.

The group announced that its subsidiary company OceanMight has accepted and signed a letter of award from Sapura Fabrication Sdn Bhd for the provision of procurement and construction for wellhead deck, piles and conductors. This is subject to terms and conditions pending the signing of the subcontract agreement. The subcontract was expected to commence in April 2018. No contract sum was disclosed however. As indicated in our report earlier, the group had been vying for three oil and gas jobs worth RM230 million since last year. It announced a contract from Petronas last month. — PublicInvest Research, May 16

 

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