RHB Research said a medium-term catalyst would be the rollout of the second phase of the Sarawak Water Supply Grid Programme in the first half of 2024.
PETALING JAYA: KKB Engineering Bhd
, which saw a significant jump in its net profit in the third quarter ended Sept 30, 2023 (3Q23), is poised to secure more jobs in Sarawak given its track record, backed by its strategic shareholder, the Sarawak Economic Development Corp.
According to RHB Research in its note yesterday, KKB’s role as the primary contractor for price agreement for the engineering, procurement and construction of standard wellhead platforms for Sarawak Shell and Sabah Shell Petroleum gives it better chances of securing more oil and gas (O&G)-related jobs.
“Moreover, the recently secured job from Malaysia Marine and Heavy Engineering Holdings Bhd for the Kasawari carbon capture and storage (CCS) should enable KKB to build its presence in the CCS space, which is a focus under the National Energy Transition Roadmap.
“A medium-term catalyst would be the rollout of the second phase of the Sarawak Water Supply Grid Programme (SWP) in the first half of 2024. KKB had secured RM200mil worth of jobs under the first phase of the SWP,” it added.
KKB’s outstanding order book stood at RM567mil as at end-September with RM510mil worth of new jobs clinched year-to-date in financial year 2023 (FY23).
RHB Research gathered that KKB’s tender book stands at RM266mil, of which about more than half is for O&G-related jobs, while the remainder is for engineering, construction and manufacturing contracts.
“KKB plans to participate in more bids (particularly O&G) from FY24 onwards with an estimated amount which could exceed RM1.5bil,” it added.
The research house believes that KKB deserves a “buy” call as the company is seen as a strategic Borneo play with 10.7% of the group owned by the SEDC, putting it at the forefront of Sarawak’s infrastructure wave.
RHB Research maintained its target price of RM1.90 for KKB and 4% FY24 yield.
“We estimate a three-year earnings compound annual growth rate of 42% backed by better job prospects (particularly steel fabrication works) from higher Petroliam Nasional Bhd spending and Sarawak’s infrastructure and green energy plans,” it added.
KKB’s net profit jumped to RM9.73mil in 3Q23 from RM1.02mil a year ago, while revenue rose to RM140.05mil from RM102mil previously.
The strong quarterly performance was mainly underpinned by KKB’s steel fabrication division which recorded turnover growth of 208% year-on-year in 3Q23 from ongoing projects.
“All in, profit after tax margin for the engineering division as a whole in 3Q23 was higher at 7.8% vs 4% in 3Q22 which we believe was achievable via prudent cost measures,” the research house said.
