Analysts encouraged by KKB’s improving prospects, especially in O&G

KUCHING: Analysts are encouraged by KKB Engineering Bhd’s (KKB) improving prospects especially with the group’s recovering oil and gas (O&G) business despite the tough trading environment currently.

According to the research arm of Public Investment Bank Bhd (PublicInvest Research), KKB’s 60.8 per cent-owned subsidiary in the O&G division OceanMight Sdn Bhd (OceanMight) has so far demonstrated its capability to win contracts after winning RM226 million out of the RM370 million worth it was said to have tendered.

“The tenders, we understand, were for six offshore structures’ fabrication projects in Sarawak. To recap, it is one of the seven licensed O&G fabricators by Petroliam Nasional Bhd (Petronas),” PublicInvest Research said.

“We are encouraged by the improving prospects especially its O&G business given the tough trading environment currently.

“More importantly, this is also signalling that KKB’s utilisation of the fabrication should be running at more optimised levels going forward with more jobs in hand.”

PublicInvest Research also recapped that KKB has invested more than circa RM115 million in modern and automated heavy machineries and equipment including covered fabrication workshop in the group’s O&G offshore fabrication yard.

“The yard is located near to private deep-water jetties with load-out capacity of up to 30,000 metric tonnes of fabricated structures.”

The research arm reckoned that KKB’s yard can differentiate itself by being located in Sarawak while also being a mid-sized fabricator not saddled with high fixed costs.

“We understand that it has completed four fabrication projects worth circa RM100 million so far,” the research arm noted

“We understand that the group’s focus for the next few years is to expand in the O&G sector as evident by its move that increased the stake in OceanMight from 43 per cent previously to 60.8 per cent.”

It further noted that in 2018, KKB has plans to spend up to RM20 million to fund the O&G expansion.

“As mentioned in our earlier report, with high operating leverage, we believe the group’s earnings could see substantial improvements once its utilisation of the yard reaches optimal levels.”

“We understand that the largest O&G fabricator in Malaysia is Malaysia Marine and Heavy Engineering Holdings Bhd (MMHE), with circa 130,000 metric tonne capacity, and that it needs at least RM1 billion worth of jobs to break-even, and hence we believe that KKB’s yard is close to break-even now and should be profitable once the jobs-in-hand improve to circa RM200 million levels.”

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