KUCHING: KKB Engineering Bhd (KKB) is believed to have clearer earnings visibility following the recent announcement of the signing of a two-year contract by its subsidiary, Harum Bidang Sdn Bhd (Harum Bidang).
“Harum Bidang has accepted and signed a two-year contract with CMS Infra Trading Sdn Bhd (CMSIT) for the supply and delivery of various concrete-lined mild steel pipes and mild steel mechanical couplings when required,” said OSK Research Sdn Bhd (OSK Research) in its research report.
The contract sum is at approximately RM74.4 million.
However, the research house highlighted that Cahya Mata Sarawak Bhd (CMS), which also owns CMSIT, is a major shareholder of KKB and as such, had deemed interest in the award.
OSK Research noted that the contract was the fourth KKB had secured in the span of three months.
With the contract in hand, the company’s year-to-date order book had risen to RM321 million.
To recap, the other three earlier contracts are the supplying of steel pipe piles for RM28 million, the supplying of structural steel and cladding works in the ferroalloy complex construction for RM171 million and an RM48 million contract for the transmission pipeline to Sama Jaya Free Industrial Zone, awarded by the Sarawak government.
“The momentum of contract flows have reaffirmed our view that the activities in the Sarawak Corridor of Renewable Energy (SCORE) region are picking up in pace,” said OSK Research, adding that this brought it to a further conclusion that KKB’s financial year 2013 (FY13) earnings would be a healthy one.
The research house believed that the company should expect more sizeable contracts to come its way in the near term.
As such, it adjusted its FY13 earnings forecast slightly upwards from RM41.8 million to RM45.2 million, pending more structural steel works contracts.
After tweaking the FY13 earnings forecast, the new fair value for KKB was pegged at RM1.75 per share, derived from 10 times FY13 PE.
“With its last close price at RM1.51, KKB provides investors a 16 per cent upside, coupled with the positive factors such as the revitalisation of SCORE region activities, the momentum of contract flows which is picking up pace and better earnings visibility.
“Its pending joint venture agreement with Brooke Dockyard to venture into the lucrative oil and gas sector might also provide investors with an upside surprise,” said OSK Research.