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Friday, December 28, 2012

KKB Engineering - Lands RM10m Home-Based Steel Works Job (OSK)

  • 28 December 2012 09:17AM

KKB Engineering - Lands RM10m Home-Based Steel Works Job (OSK)

  buy Fair Value: MYR1.75

KKB Engineering (KKB) announced on Bursa Malaysia yesterday that it has accepted a Letter  of  Award  for  the  Supply,  Fabrication,  Delivery  and  Erection  of  Structural  Steel Works  for  certain  parts  of  the  Corridor  Roof  Structure  for  the  proposed  University College  of  Technology  Sarawak  &  Technology  Park.  The  subcontract,  estimated  to  be worth RM10.3m, will be completed in five months.


Second structural steel works job. This is the second structural steel works KKB has secured  after  having  landed  the  RM171.0m  contract  for  structural  steel  and  cladding works to construct client  Pertama Ferroalloys SB’s ferroalloys complex.  Currently, KKB has contracts totaling RM342.7m (RM332.4m + RM10.3m) in its orderbook.

Amount may not be large, but still positive for the company. The RM10.3m contract may  not  be  that  significant  but  still  represents  a  positive  trend  since  structural  steel works  usually  command  better  margins.  Although  the  date  for  the  commencement  of works  has  yet  to  be  decided, but  we  think  that  this  contract  will  contribute  positively  to KKB’s 1HFY13 earnings growth given that it is estimated to be completed in five months. Nevertheless, we consider this within our expectation and hence make no adjustment in our original forecast.

Stretching over to FY13. As we stated earlier, we may be able to see stronger earnings growth for KKB in 4QFY12, but we still think that most of the  company’s earnings from the  existing  contracts  may  spill  over  to  FY13,  as  a  result  of  which  the  earnings  to  be attributed  to  its  FY12  bottomline  would  be  somewhat  limited.  This  leads  us  to  believe that FY13 may be a better year for KKB.

Maintain  BUY.  Against  the  backdrop  of  our  optimistic  view  on  robust  developments  in Sarawak,  we  hold  on  to  our  view  that  the state’s local players like KKB  which  have  a significant  presence  on  home  ground  will  benefit  by  riding  on  the  wave  of  those developments.  Hence,  we  are  maintaining  our  BUY  recommendation  on  KKB,  with  our RM1.75 FV unchanged based on 10x FY13 PER.


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