Sarawak’s infrastructure growth to boost KKB Engineering


RHB Research said KKB Engineering is expected to benefit strongly from Sarawak’s own RM10.8bil development expenditure for 2025.

PETALING JAYA: KKB Engineering Bhd’s prospects are expected to be buoyed by its order book and better contributions from projects moving forward.

RHB Research said the steel fabrication company’s core earnings of RM15.8mil for the first nine months of the year (9M24) had missed its estimates, coming at 63% of full-year projections, partly on a higher-than-expected portion of non-controlling interests (NCIs).

“We do expect better contributions in the final quarter from projects that progress, for example the Rosmari-Marjoram onshore gas plant in Bintulu, Sarawak,” the research house said in a report yesterday.

For the third quarter ended Sept 30, 2024 (3Q24), the group’s engineering arm saw 7% growth in net profit year-on-year, with net margins remaining near 8% due to the progress of steel fabrication work for Sarawak Shell and the Rosmari-Marjoram onshore gas plant in Bintulu.

“The manufacturing arm recorded a net loss of RM500,000 in 3Q24 amid the completion of a deal to supply mild-steel pipes in Brunei. An order secured in May for a water treatment plant in Sibu remains in the early stages.

“KKB Engineering’s outstanding order book stood at about RM165mil with about RM130mil in jobs clinched in 9M24 versus our earlier FY24 forecast of RM300mil,” the research house said.

Meanwhile, the group’s tender book stands at about RM295mil, with results likely to be known between late 4Q24 and 1Q25.

“Notwithstanding this, the group is in the midst of participating in additional bids worth RM350mil by end-4Q24 in Sabah and Sarawak – potentially bringing the tender book to about RM645mil, based on our estimated success rate of 30% to 40%, by end 2024.

“Outcomes for the additional bids may be known by the end of the first half of 2025,” RHB Research said.

The research house lowered its forecasts for the company’s earnings in FY24, FY25 and FY26 earnings by 13.5%, 5% and 8%, respectively, as it adjusted its NCI estimates and lowered its FY24 job wins replenishment forecasts for KKB Engineering to RM250mil from RM300mil.

RHB Research added KKB Engineering is expected to benefit strongly from Sarawak’s own RM10.8bil development expenditure for 2025 in light of its track record with state-driven projects such as the Bakun Dam, Miri Airport hangar, Kuching Airport redevelopment, Pan Borneo Highway and Sarawak Water Supply Grid, among others.

“We also do not discount KKB Engineering’s potential to clinch engineering, procurement and construction (EPC) jobs from upcoming hydrogen projects in Sarawak such as H2biscus, with EPC work to begin after the targeted final investment decision in 4Q24,” the research house said.

Once completed, the H2biscus project will see green hydrogen and green ammonia being produced in Sarawak.

RHB Research maintained a “buy” call on the company with a target price of RM1.86 by pegging FY25 earnings per share to an unchanged target price-earnings ratio (PER) of 17 times, which bakes in a 2% environment, social and governance premium.

“The target PER is near the Bursa Malaysia Energy Index’s five-year mean and is justified by Sarawak’s oil and gas sector, which is projected to surpass RM60bil in gross domestic product by 2030,” the research house said.

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