SYMBIOTIC PARTNERSHIP: Photo shows one of KKB’s steel fabrication plants. AmResearch says the proposed tie-up is a symbiotic and viable proposition, which will benefit both parties. This stems from KKB’s dominant position in Sarawak’s steel fabrication industry, with an over 60 per cent share of the local market.
KUCHING: KKB Engineering Bhd (KKB) is on track to some possible oil and gas (O&G) related contracts in the pipeline as the company has signed a Memorandum of Understanding (MOU) with Brooke Dockyard & Engineering Works Corporation (Brooke Dockyard) to set out its intention and mutual understanding in connection with a proposed strategic alliance and joint-venture.
The collaboration includes a lease of the deepwater river front yard by KKB to Brooke Dockyard for its O&G substructure and other works, with the exclusive rights given to KKB to undertake such works to the extent its service can meet Brooke Dockyard’s client requirements.
The proposed strategic alliance would be strictly located at KKB’s deep river front yard along Jalan Bako. Brooke Dockyard is a government statutory body wholly owned by the state government and under the Ministry of Infrastructure Development and Communications.
Established in 1912, it is the oldest shipyard in Malaysia and a leading marine engineering entity actively involved in the O&G, shipbuilding, ship repair, bridges infrastructure and onshore manufacturing sectors.
OSK Research Sdn Bhd (OSK Research) opined, “The expansion of this deep river front yard opens up room for more fabrication works, and the latest development again demonstrates management’s ability to push the company to the next level.
“As Brooke Dockyard’s current capacity is relatively small compared with that of its larger peers like Malaysia Marine and Heavy Engineering Holdings Bhd with close to 90,000 tonnes and Kencana Petroleum Bhd, it can possibly expand after the alliance with KKB, especially since the company’s new fabrication yard is scheduled to come on stream progressively.
“We are generally positive on KKB’s move into the lucrative O&G sector, apart from its existing focus on contracts from Samalaju Industrial Park.
“Together with the abundance of new O&G blocks found offshore Sarawak scheduled to come on stream in the next few years, we expect this unit – which gets the strong backing of the state government – may at least get a fair opportunity to participate in some of those new contracts,” OSK Research reckoned.
AmResearch Sdn Bhd (AmResearch) was also positive on the news, stating, “We believe this proposed tie-up will provide KKB with a tremendous head-start for its intended entry into the fabrication of O&G steel structures.
“We believe the proposed tie-up is a symbiotic and viable proposition, which will benefit both parties. This stems from KKB’s dominant position in Sarawak’s steel fabrication industry, with an over 60 per cent share of the local market.
“Given that Brooke Dockyard is a Petronas-licenced services provider, there could be potential for major fabrication jobs ahead. The latest announcement on the proposed collaboration will catalyse and sustain excitement in the stock in the near and medium term,” AmResearch opined.
The research house further added that KKB’s make-up was fundamentally sound, with net cash of RM86 million as at September 30, 2011. Furthermore, it had a generous dividend track record, with an annual payout ratio of between 28 per cent and 60 per cent over the past five years.
Using a sum of parts method, AmResearch derived a fair value of RM2.38 per share, translating into an implied price earnings of 8.7 times against financial year 2012 (FY12) forecasted earnings per share of 27.2 sen
From a multiple of eight times FY12 earnings per share, OSK maintained KKB’s fair value pegging at RM2.20 per share, representing an upside of 30 per cent.