KUCHING: East Malaysia steel fabrication and manufacturing company, KKB Engineering Bhd (KKB) has recently added another structural steel works job in Sabah to its order book since July 2012, subsequently paving a brighter outlook to the group’s growth.
KKB recently announced that it had acknowledged a Letter of Award from Consortium of Apex Energy SB and PT Rekayasa Industri as a sub-contractor for the supply and fabrication of steel structures package three for the Sabah Ammonia-Urea (Samur) Project in Sabah
The project had a total contract sum of RM32.8 million and was scheduled for completion within 14 months.
“This is the third structural steel works job announced by the company since July 2012,” OSK Research Sdn Bhd (OSK Research) analyst Jerry Lee pointed out.
To note, the Samur Project was a venture worth US$1.5 billion undertaken by a special purpose vehicle wholly-owned by the Petronas Chemicals Group.
The project, started early 2012 with a 2015 commission target, involved the development of a new fertiliser plant located on 166 acres of land in the Sipitang Industrial Park, Sabah, with urea production capacity of 1.2 million tonnes per annum.
Lee outlined, with the recent Sabah contract, KKB had bumped up KKB’s total jobs to RM365.2 million from RM332.4 million, in its order book.
“RM32.8 million is quite a substantial amount for KKB and as structural steel works job generally commands better margins, we believe that this contract may contribute quite significantly towards its bottomline,” he opined.
As KKB had been aggressively replenishing its order book since the second half of the financial year 2012 (2HFY12), the analyst noted, “We may see stronger earnings growth in the fourth quarter of FY12 (4QFY12)”.
The anaylst further opined the earnings from the new contracts would only be more significant starting FY13 as most of its earnings from existing contracts might spill over to FY13 forecast (FY13f), and as such, earnings to be attributed to FY12 would be somewhat limited
Lee noted, KKB’s current forecasted FY12 revenue stood at RM184.2 million and forecast net profit, at RM23.9 million.
Additionally, the analyst said, FY13f revenue had been estimated at RM239.5 million and net profit at RM45.2 million. However, Lee noted, the estimates for KKB’s FY13f might be revised after the group’s results announcement later this month.
“We continue to keep our positive view on KKB on the back of our bullish view on Sarawak’s development.
“Having secured another structural steel works contract in Sabah will contribute positively to its bottomline,” Lee highlighted, positively.
However, he commented, potential risks in his forecast might come from KKB’s probable lack of replenishment for its structural steel works as well as the group’s margin which was below expectation.
He further noted, there was a risk whereby the development in Sarawak (especially Samalaju) was slower than expected. OSK Research thus derived the fair value at an unchanged RM1.75 per share, based on 10-fold FY13 price earnings ratio.