KUCHING: KKB Engineering Bhd’s (KKB) healthy order book will provide stable outlook for financial year ended 2018 (FYE18), FYE19 and FYE20, analysts project, while also noting the group’s engineering and construction sector will be the earnings driver.
According to the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research), KKB’s latest outstanding order book stood at RM0.9 billion, implying four-fold cover to FY17 revenue.
“Moving forward, its healthy order book will provide stable outlook for FYE18-FYE19-FYE20 respectively,” MIDF Research said.
“We expect the group’s engineering and construction sector to be the driver of earnings, owing to the contribution from Pan Borneo Highway and steel fabrication projects.
“Going ahead, further optimism is fuelled by Sarawak government’s persistence, in solving the problem of water supply coverage.
“We noted that a sum of RM2.8 billion was allocated to fund a total of 247 water and water-related projects for implementation in the next two years.”
From MIDF Research’s viewpoint, KKB’s long experience in the business as well as the group’s value chain advantage will remain their competitive edge, to compete for future infrastructure and engineering projects in East Malaysia.
“As Sarawak’s sole water pipe manufacturer, KKB is poised to benefit from projects which involve the supply of steel water pipes and structural steel, which are potentially be awarded under the state water grid project.”
That said, MIDF Research said that it has to be mindful that KKB’s prospect is not in isolation of the local construction industry outlook.
It highlighted that the trend was apparent post election, with the revision of mega projects led to sector-wide uncertainties.
“Like most construction-related stocks, KKB’s stock was not exempted from the weaken share price performance (down 17 per cent).
“Despite the drift, we highlight KKB’s strong prospect as it is mainly exclusive to Sarawak infrastructure development, helmed by the internal state funds.
“This should mitigate any headwinds that are facing the construction sector currenctly.”
MIDF Research also noted on the work orders for D28 Phase 1 project by Petronas Carigali which has started to contribute earnings positively.
“It was awarded to KKB in March 2018, with construction works expected to complete by year end.”
In subsequent months onwards, the research arm expected contribution of similar quantum will be recognised as it takes into account the work progress of Wellhead Platforms for D18 Phase 2 project.
Overall, MIDF Research pointed out that KKB’s price revival has been sparked by succeeding progressive news flows i.e. the continuation of Pan Borneo Highway and the state’s position over the long-drawn out plan of water grid system.
“On that water grid’s note, local players with proven track record and competitive value chain are expected to benefit from the potential roll-out of work packages.
“In the near term, KKB is expected to bid further open tenders worth approximately RM350 million. The total sum is primarily a combination of oil and gas, water projects, and pipe supplies.
“If these tenders are successful, KKB expects to be awarded with the new projects within the first quarter of FY19 (1QFY19) to 2QFY19.”
“At this juncture, we believe the risk-reward return embedded in KKB’s potential is attractive.”
Source: Borneo Post Online