KUCHING: KKB Engineering Bhd (KKB) recorded a 28.5 per cent increase in its current quarter’s revenue of RM119.8 million, boosted by increased revenue from the Group’s Engineering Sector, in particular, its civil construction and steel fabrication divisions.
Concurrently, the group’s pre-tax profit for its second quarter of financial year 2019 (2QFY19) rose to RM10.5 million, an increase of 218.5 per cent compared to RM3.3 million recorded in the preceding year corresponding quarter.
This brings its year to date pretax profit to RM17.9 million on the back of higher revenue and improved profit margin recognized from the Engineering sector.
MIDF Amanah Investment Bank Bhd (MIDF Research) saw that KKB’s engineering segment grew its income (external) by 66.2 per cent year on year (y-o-y) to RM223.5 million in 1HFY19.
“Civil construction and steel fabrication businesses represent a big portion of the division, which we expect to continue supporting earnings at least in the medium term,” it said in a note yesterday. “Notably, the construction segment has been supported by the progress works of Pan Borneo Sarawak.
“Meanwhile, 2QFY19 revenue for steel fabrication was mostly recognised from the Wellhead Platforms for D18 Phase 2 project for Petronas. Based on the project’s
scheduled completion date, we believe its contribution to FY19 bottom-line is likely to be significant.
“On top of this, we noted that the two new pipes laying projects (secured in February 2019) has already commenced works. Both contracts summed to a sizeable amount of RM110.8 million.
In consideration of this, we expect progress works to contribute positively to the group’s earnings until FY20.”
As of June 2019, KKB’s current outstanding orderbook stood at RM800 million. Based on the current progress rate, MIDF Research believed the amount will last until 2HFY21.
Over the 1HFY19, new works secured was recorded at RM189 million, forming a sizeable portion of the current unbilled jobs.
“We noted that the new works clinched in 2019 was mostly awarded under the State Water projects. Total tenderbook as of June 2019 was RM602 million, comprising RM162 million for manufacturing and engineering sector and RM440 million for the oil and gas sector.”
All these led MIDF Research to maintain its forecasts and target price of RM1.47 per share for KKB, but it downgraded the stock to neutral.
“KKB’s share price has touched our target price of RM1.47 on August 8, 2019. We believe the momentum built up was reflective of the group’s encouraging prospect in Sarawak. Outlook in the near term should be well supported by the potential slew of infra jobs in the state,” it added.
“Moving forward, we expect KKB to derive benefits from the roll out of State Water Grid project worth RM2.8 billion, given its presence in the steel pipes industry. It stands a good chance of winning some contracts from the water projects, due to its long track record in pipe manufacturing and supplies.
“The company currently sits on approximately RM88.0m of cash reserves, putting it in comfortable position to clinch and operate new projects successfully. KKB has been actively bidding for the state water projects in 1H19, indicating that any upcoming awards from the project could potentially manifest towards the year end.
“In the near term, we expect the results to be within our expectations, supported by the progress billings for Pan Borneo Sarawak package. Given the strength shown in share price — rising by 64.4 per cent on year to date basis — we believe a downgrade is warranted, without adjusting our valuation.”
In a more optimistic view, Rakuten Trade’s research team also said technically, KKB’s share price hit its 52-week high at RM1.50 level recently and is trading above all key moving averages, signalling a strong buying momentum.
“Following the announcement of positive financial results, we expect the uptrend to continue, pushing share price to higher level. From here, should it break RM1.50 level, we expect next resistance level at RM1.60.
“Conversely, support levels are identified at RM1.34 and RM1.29.”