Extreme optimism on KKB upon initiation by MIDF Research
KUALA LUMPUR: As the leading steel fabricator in East Malaysia – and one of the only few Petronas licensed fabricators here – MIDF Amanah Investment Bank Bhd (MIDF Research) is optimistic on KKB Engineering Bhd (KKB) with their initiation on the firm.
“With over 55 years of experience in the steel fabrication industry, KKB is an established player with significant market share in East Malaysia.
“And in 2013, KKB’s 60.81 per cent owned subsidiary, OceanMight Sdn Bhd (Ocean Might) managed to obtain a Petronas Approved Supplier licence for the category of ‘Offshore Facilities Const-Major Onshore Fabrication,” said MIDF Research in its initiation report.
To date, KKB’s complete projection portfolio features the Ferro Alloy Complex at Samalaju Industril Park; the University College of Technology Sarawak in Sibu; the Borneo Convention Centre; steel structures for Petronas Tank 7 New Jetty-PAF Project and LNG Train 9 Project; and the upgrades or redevelopments of several East Malaysian airports such as Labuan Airport, Kota Kinabalu International Airport, Kuching International Airport and Kota Kinabalu’s Low Cost Carrier Terminal.
Meanwhile, associate Ocean Might has completed the fabrication, hook-up and commissioning services for the Tanjong Baram Wellhead Platform, the Engineering, Procurement and Construction (EPC) of the Wellhead Platform for Kinabalu Redevelopment Project and the EPC for Bunga Pakma Wellhead Riser Platform.
With a long track record of excellence, the group’s orderbook is secured until 2020 and sits comfortably at approximately RM800 million as at end-Dec 2017, consisting of an RM1.289 billion Pan Borneo Sarawak package award to its joint venture with WCT Bhd (KKB-WCT) and several steel fabrication projects.
Besides that, the group’s earnings have also seen vast improvement in financial year 2017 (FY17) as its revenue grew significantly by +103.0 per cent year over year (y-o-y) to RM209.3 million.
It is understood that this surge in revenue is mostly attributable to higher revenue from the group’s civil construction division and steadily growing revenue from its on-going fabrication works of low high tension steel poles and the previous subcontracted works for the fabrication of wellhead platforms.
Moving forward, it is expected that KKB will continue their growth story with more exposure in the oil and gas (O&G) O&G industry by tendering for more projects under OMSB.
“KKB’s focus will be more centralised towards the upstream O&G sector, specialising in the EPC works as KKB is among the only eight companies licensed by Petronas to undertake EPC projects in Malaysia,” said the research arm.
While Ocean Might has yet to announce works on a new EPC project after their completion of Bunga Pakma Wellhead Riser Platform in the third quarter of 2017 (3Q17), KKB’s chief executive officer (CEO) and director of OMSB, Datuk Kho Kak Beng shared with The Borneo Post in a previous interview that there would be another potential EPC project award for OMSB in 1QFY18.
But besides just O&G, MIDF Research guides that KKB is also poised grow through an increased exposure in the power sector as it continues to pursue participation in the Power-Energy projects in Sarawak.
“To act upon this, KKB has expressed its interest to Sarawak Energy Bhd (SEB) and the state ministry in charge of energy development. SEB’s aim is to provide uninterrupted power supply across the state of Sarawak, thus, anticipating to reach an installed capacity of 5,200 megawatts (MW) and 7,700MW by 2020 and 2025 respectively.
“Among the upcoming projects under SEB are: Tanjung Kidurong Combine Cycle Gas Turbine (CCGT) power plant with 400MW; the Samalaju CCGT with 1,200MW; Northern Grid Expansion to Limbang and Lawas by 2021 and; the Baleh hydroelectric project (HEP) with 1,285MW,” shared the research arm.
With a strong foothold in steel fabrication and construction and prospects in the O&G and power industry, MIDF Research believes that KKB will be able to maintain a stable growth going forward – justifying their ‘Buy’ call initiation on its stock into their coverage.
The research arm’s target price of RM1.15 on KKB’s stock is premised on a forward price book ratio (PBR) of one-fold, representing the average PBR over the past two years.