KUCHING: KKB Engineering Bhd’s (KKB) outlook will likely remain challenging in the near term while an upturn is expected to be seen in the financial year 2016 (FY16).
AmResearch Sdn Bhd (AmResearch) yesterday said KKB expects the outlook to be challenging and continues its prudent cost management.
“It is staying focused on its long-term strategies to identify viable new business opportunities,” it added in a report yesterday.
The research team further noted that the company expected a weaker fourth quarter (4Q), and as such, it cut its FY15 forecast (FY15F) earnings forecast by 23 per cent to RM28.8 million. It added, the pick-up would only be in FY16.
“Despite the quarterly loss, the first nine months of FY15 (9MFY15) earnings accounted for 80 and 81 per cent of our earlier, and consensus, full-year estimates,” AmResearch said.
“We raise our FY16F and FY17F forecasts by 10 and nine per cent, respectively, given that the bulk of the Talisman wellhead contract its associate Oceanmight had secured in September will likely be booked by then.
“The group’s order book currently stands at circa RM180 million, including the Talisman wellhead job that is scheduled for completion by 2Q17.
“Recall that KKB had in September announced three contracts, including the Talisman job, worth a total of RM171 million,” the research team said.
It added, “KKB says the group has started its design and engineering phase of the engineering, procurement and construction of the Talisman wellhead platform. KKB will soon also start work on the supply of fabricated steel structures under the Petronas LNG Train 9 Project.”
Aside from that, it noted that Oceanmight’s fabrication jobs directly benefit KKB, given its engineering expertise in steel and pipe manufacturing.
“The group’s current tender book stands at circa RM337 million, comprising circa RM87 million and circa RM250 million of conventional and oil and gas jobs, respectively.
“We maintain our conventional job assumption for FY15F at RM80 million,” it projected.
The downside risks include the lack of conventional jobs for its engineering and manufacturing divisions.
“Continuing to mitigate the downside risks is a solid balance sheet, with net cash position at RM123 million as at end-September 2015 (an increase of two per cent quarter-on-quarter and an increase of 66 per cent year-on-year),” AmResearch said.
Overall, it maintained a ‘buy’ recommendation on the stock.