KKB sees 3Q boost from resumption of construction
KUCHING: KKB Engineering Bhd’s (KKB) normalised earnings for its third quarter of financial year 2020 (3QFY20) jumped by 152.9 per cent quarter and quarter (q-o-q) to RM11 million, primarily driven by the resumption of its construction and business activities which led to higher progress claims.
On a year- on-year (y- o-y) basis, it slumped by 42.9 per cent on slower pace of work activities given the current Covid-19 standard operating procedures (SOPs) in place.
Cumulatively, the group’s normalised earnings for the first nine months of FY20 (9MFY20) decreased by 20.8 per cent y- o-y to RM22.2 mo;;opm as a result of lower revenue recognition from the group’s civil construction and steel fabrication divisions.
However, this came in within expectations of MIDF Amanah Investment Bank Bhd ( MIDF Research) as it expect KKB’s construction and business activities to continue to pick up pace moving forward.
“The group’s 9MFY20 revenue declined by 21.8 per cent y- o-y to RM315.1 million which was mainly as a result of lower revenue of RM50 million from its construction division,” it said in a results review yesterday.
“The decline in revenue from the construction division was due to lower progress claims from the Pan Borneo Highway project (WPC-09) during the MCO period.
“This, however, was partially offset by higher revenue of RM22.2 million from the Steel Pipes manufacturing division in 3QFY20. The group also managed to contain its cost of sales in 9MFY20 to RM252.4 million which led to an improvement in operating profit margin of 12.4 per cent.”
KKB’s manufacturing sector remains a bright spot, MIDF Research observed, as its 9MFY20 total revenue for the manufacturing sector improved by 73.8 per cent y- o-y to RM115.9 million as predominantly driven by the strong revenue performance from the Steel Pipes manufacturing division (SPMD) which jumped 69.5 per cent y-o-y to RM22.2 million in the 3QFY20.
This was mainly driven by the pent-up customer demand for Mild Steel Pipes required under the Sarawak Water Supply Grid Programme.
“We opine that this division would continue to benefit from the increased allocation for the Sarawak Water Grid programme as evidenced by the group’s new water supply job win from Kuching Water Board (KWB) in May this year,” it continued.
“Thus, we are of the view the continuous upgrading of water supply systems in Sarawak will provide a synergistic benefit to the group’s SPMD and Steel Fabrication division within its Engineering Sector as well moving forward.”
MIDF Research posit that KKB’s revenue and earnings prospects will remain healthy moving forward in anticipation of recovery in earnings following the resumption of construction
and business activities.
The group’s prospect is also well-supported by its healthy outstanding order book of about RM840 million which will provide earnings visibility over the next two years.
“Meanwhile, we are of the view that KKB would continue to be a beneficiary from the potential mega infra projects roll- out in the state of Sarawak and Sabah (i.e. Sarawak-Sabah Link Road, Trans-Borneo Highway project, Sarawak Water Supply Master Plan and Water Grid, Sarawak Petrochemical Hub) in the foreseeable term,” it said.
“The expansionary Budget 2021 reaffirms our view on the potential upcoming developments in East Malaysia, whereby the group is
poised to capitalise on new job replenishment opportunities given its strong track record in steel pipe manufacturing and local expertise in the civil construction in the region.
“This is premised on the sizeable combined allocation of about RM9.6 billion as development expenditure for the state of Sabah and Sarawak in year 2021.
“In addition, the Sarawak state government has announced an additional budget of RM9.8 billion for the state in the following year as well, focusing on projects such as the coastal road network (RM1.2 billion), Regional Corridor Development Authority projects (RM1.7 billion) and Integrated Regional Samarahan Development Agency projects (RM792 million).