MIDF downgrades KKB to Neutral, maintains TP at RM1.47

  • Analyst Reports
  • Friday, 16 Aug 2019

analyst report

KUALA LUMPUR: MIDF research is positive over the KKB Engineering Bhd's first-half PATAMI of RM8.7mil, which was much improved over that of the previous corresponding period.

The research house said the earnings comprised 55% and 52% of its and consensus full-year estimates, and were "laudable" in comparison to the previous year's earnings.

KKB's income was boosted by the engineering segment, which rose 66.2% year-onyear to RM223.5mil in 1HFY19.

It said civil construction and steel fabrication is expected to continue suporting earnings in the segment over the medium term.

"Notably, the construction segment has been supported by the progress works of Pan Borneo Sarawak," it said.

In the steel fabrication segment, MIDF said 2QFY29 revenue was mostly recognised from the WEllhead Platforms for F18 Phase 2 project for Petronas.

It believes the project's contribution to FY19 bottom-line is likely to be significant while the two new pipe-laying projects have already commenced works.

WIth a combined contract sum of RM110.8mil, MIDF expects progress works to contribute positively to the group's earnings until FY20.

As at June 2019, KKB has an outstanding orderbook of RM800mil, of which MIDF expects to last until 2HFY21.

Total tenderbook as of June 2019 was RM602mil, comprising RM162mil for the manufacturing and engineering sector and RM440mil for the oil and gas sector.

MIDF expects KKB's results to be within expectations over the near term, supported by a potential slew of infra jobs in Sarawak.

"Moving forward, we expect KKB to derive benefits from the roll out of State Water Grid project worth RM2.8b, given its presence in the steel pipes industry.

"It stands a good chance of winning some contracts from the water projects, due to its long track record in pipe manufacturing and supplies," it said.

However, given the strength in its share price, having risen 64.4% year to date, the research house downgraded the counter to neutral with an unchanged target price of RM1.47.

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