KKB to focus on the Sarawak Water Supply Grid programme

PETALING JAYA: Integrated engineering player KKB Engineering Bhd will tender for more jobs from the third quarter of 2020 onwards, with a renewed focus on the Sarawak Water Supply Grid programme, says its executive director Kho Pok Tong.

As of April, KKB was tendering for some Rm227mil worth of jobs, including water works, where the outcome is expected to be known in the third quarter onwards or the first quarter of 2021.

Year-to-date, KKB has already replenished its order book by an additional Rm338mil, where it has won four new contracts consisting of one water project, one steel fabrication job and two engineering, procurement, construction, installation and commissioning (EPCIC) oil and gas (O&G) jobs.

The Sarawak government has been steadily rolling out water projects under its multi-billion-ringgit Sarawak Water Supply Grid Programme, despite the Covid-19 pandemic.

In fact, on May 17, Utilities Minister Datuk Seri Stephen Rundie said that the Sarawak government had increased its allocation of the water grid programme from Rm2.8bil to Rm4bil on immediate upgrading works.

Out of the additional Rm1.2bil allocation, some 10% to 15% should roughly be for steel water pipe works.

KKB, which is the sole manufacturer of steel water pipes in Sarawak, saw its net profit jump by 115.79% to Rm6.82mil on the back of an 8.13% decrease in revenue to Rm108.18mil for its first quarter to March 31, 2020.

Apart from better margins from its engineering division, the better earnings were due to increasing contribution from its water steel pipes division.

“It managed to register a 340.8% increase in water revenue at Rm21.6mil in the first quarter due to the increased off-takes of steel pipes required under the Sarawak Water Supply Grid Programme,” said MIDF head of strategy Syed Kifni Kamaruddin.

“KKB has shown its mettle as a steel pipe water manufacturer. Going forward, KKB is likely to be a beneficiary of state water projects, considering its long track record in the piping and steel business,” said Syed Kifni.

KKB’S steel pipe manufacturing plant is equipped to produce both cement-lined mild steel (MS) pipes, as well as polyurethane-lined MS pipes.

KKB, which has Cahya Mata Sarawak Bhd as its second-largest shareholder with a 20.1% stake, has a total order book of Rm880mil, which consists of water and infrastructure projects, and O&G fabrication jobs.

The water projects make up between 20% and 30% of its order book.

These projects will be progressively billed over the next 27 months, lasting it up to 2022.

In its filing with Bursa Malaysia for its first-quarter results, KKB was cautiously optimistic that the group would still be able to achieve satisfactory results for the financial year ending 2020.

“This will be supported by the current orders in hand and the on-going construction works for the Pan Borneo Highway project, water-related construction projects, other related infrastructure works implemented under the Sarawak Water Supply Grid Programme and the ongoing major onshore fabrication jobs for the O&G facilities,” said KKB.

KKB is controlled by the Kho family via their vehicle Kho Kak Beng Holding Company Sdn Bhd with a 42.97%. Its incumbent status appears to be emerging in the O&G fabrication segment in Sarawak.

Since the closure of state-owned Brooke Dockyard and Engineering Works Corp, KKB has become the only licensed O&G fabricator in Sarawak, via its 60% subsidiary Oceanmight Sdn Bhd (OMSB). Brooke Dockyard slipped into financial trouble after it incurred losses caused by a contract it had undertaken.

The spillover effect started showing when in January this year, OMSB secured two new contracts from Petronas Carigali Sdn Bhd and PTTEP Sarawak Oil Ltd.

Valued at Rm270mil, these projects were for the provision of the EPCIC of wellhead platforms and the provision of the engineering, construction and commissioning of the

Bakau and Pemanis wellhead platforms, respectively.

As at Dec 31, 2019, the group had invested approximately Rm139.5mil for the expansion of its fabrication yard at Lot 777. The group funded most of its capital expenditure through cash generated from operations.

Back in Dec 12, 2018, OMSB was awarded the Petroliam Nasional Bhd (Petronas) Frame Agreement for the provision of engineering, procurement and construction (EPC) of fixed offshore structure works for a period of six years.

This agreement opened up more opportunities for OMSB, as it was able to bid for more such jobs from Petronas.

For its financial year ended Dec 31, 2019 (FY19), KKB’S revenue grew 35.6% to Rm559.3mil. Its profit attributable to equity holders increased 171% to Rm47.7mil.

As of March 31, 2020, the company had cash and short-term funds of Rm92.79mil.

With debt of some Rm9.4mil, this puts the company in a net cash position.

At its price of RM1.71, KKB has a market capitalisation of Rm440.82mil and presently trades at a trailing price earnings ratio of 8.5 times.

Meanwhile, there is a dividend of six sen for FY19 that was recommended by the board on Feb 18, 2020, but has yet to be distributed.

The dividend entitlement and payment date will be announced at a later date.