KUCHING: KKB Engineering Bhd’s (KKB) latest steel pipe supply contract did not come as a surprise to analysts as the group has replenished RM54 million worth of contracts this year.
In a statement to Bursa Malaysia, KKB had announced that its subsidiary Harum Bidang Sdn Bhd (Harum Bidang) had accepted and signed a two year contract with CMS Infra Trading Sdn Bhd (CMSIT), a subsidiary of Cahya Mata Sarawak Bhd (CMS), for the supply and delivery of concrete-lined mild steel pipes and mechanical couplings with a contract sum of approximately RM43.9 million.
According to the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research), the group having secured another steel pipe supply order from its strategic partner CMS was expected.
“This is not a surprise to us as KKB has replenished RM54 million worth of contracts this year, accounting for 108 per cent of our assumed RM50 million new jobs in financial year 2014 (FY14),” it said.
AmResearch Sdn Bhd (AmResearch) noted that this contract is on the heels of a five-month RM10 million pipe supply deal Harum Bidang had signed with CMSIT last week. It thus believes that KKB would likely continue to receive workflow from CMS – as evidenced in this latest contract.
“The latest brings major jobs secured to-date to over RM50 million – meeting our recently revised new order assumption for FY14F.
“For FY15F and FY16F, we expect it to secure new orders of RM250 million and RM280 million, respectively, for its conventional activities,” it said.
The research house remains convinced that premium is attached to its 43 per cent-owned associate Oceanmight Sdn Bhd (Oceanmight), one of eight Petroliam Nasional Bhd-licensed (Petronas-licensed) oil and gas (O&G) fabricators nationwide and one of just two in Sarawak to undertake jobs for the national oil company.
“Our job win assumptions for Oceanmight at RM80 million per annum for FY15F-FY16F and at RM130 million for FY17F are conservative.
“It is bidding for RM960 million worth of O&G fabrication jobs, the results of which could be known by 1QFY15,” AmResearch said.
It noted that a 30 per cent success rate could see it winning close to RM300 million worth of jobs – potentially translating into RM150 million each for FY15F and FY16F. This led to AmResearch reiterating its ‘buy’ call on KKB, with an unchanged fair value of RM2.05 per share – a 5 per cent discount to its sum of parts (SOP) of RM2.15 per share – by virtual of its associate Oceanmight’s O&G fabrication potential in Sarawak.
As for MIDF Research, it continues to like KKB’s niche in steel-related industry which has been growing from strength to strength.
“We believe KKB is poised to continue to benefit from its strategic alliance with CMSB. Apart from that, continuous investment in Sarawak’s development (SCORE) will open more job opportunities for KKB,” it said.