KUALA LUMPUR: Maybank Research is maintaining its “buy” recommendation on oil and gas services provider KNM Group Bhd, with an unchanged target price of RM1.
The brokerage on Thursday said KNM’s recent win of an engineering, procurement, construction and commissioning (EPCC) job worth £88mil (RM581mil) in the United Kingdom was a positive development, as it showed KNM’s commitment and progress to transform its business model.
“We are positive on this development as KNM is committed and on track to remodel its business, from cyclical to steady-income base type,” Maybank Research said.
To recap, KNM received a letter of award from UK-based Drenl Ltd for the EPCC of a waste-to-energy facility at Beddington Lane, Croydon, UK. Drenl is a developer of materials recovery and low carbon renewable energy (RE) projects.
In addition to the EPCC contract, which was expected to take about 27 months to complete, KNM had also been awarded the Operations & Maintenance (O&M) job of the same WTE facility, subject to the finalisation of the terms and conditions.
“The EPCC works (its bread-and-butter) will provide a profit base to the group over the next two years whilst the O&M contract, once finalised, will offer KNM a recurring earnings base,” Maybank Research said.
“KNM was expected to register a 20%-25% gross margin from this EPCC RE job, decent in our view and a net profit contribution of RM25mil to RM35mil per annum,” it added.
Maybank Research said its forecasts remained unchanged for KNM, as it had incorporated RE wins of RM350mil-RM450mil per annum for 2015 to 2016.
“Apart from an earlier Cypark (RM278mil) and the recent Drenl RE job wins secured to-date, KNM is confident of bagging several more works over the next few months (four to six jobs locally and abroad),” it said.
Maybank Research said the key re-rating catalyst for KNM would be the crystallisation of the much-awaited BOO Peterborough WTE project.
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