Outlook bright for KKB, despite slide in earnings

PETALING JAYA: While acknowledging that KKB Engineering Bhd’s net profit for the nine months ended Sept 30 has been below its estimates, research house MIDF Research remains optimistic about the construction engineering firm’s prospects moving forward.

KKB’S net profit for the third quarter of the year fell 68.5% year-on-year (y-o-y) to Rm3mil, in tandem with cumulative net profit for the first nine months of 2022 which decreased by 68% y-o-y to Rm6.8mil.

This is despite a marginal 3% y-o-y increase in revenue for the quarter to Rm102mil, while cumulatively, turnover also rose by 9% y-o-y to Rm305.1mil from January to September 2022.

The research house said the erosion of net profit was due to weaker margins, on the back of higher raw material prices and input costs.

It said in a note released yesterday: “Revenue from the company’s engineering segment was the main contributor to the group at Rm97mil for the quarter, which saw a 5.7% y-o-y growth.

“The main driver for the segment was the civil construction division, which almost doubled to Rm70.9mil in revenue, mainly due to higher progress claims from its Pan Borneo Highway package in Sarawak.”

The research house also said KKB’S turnover from its manufacturing segment declined 10% y-o-y to Rm5mil for the quarter in review and posted a loss of RM250,000.

On a positive note, MIDF reported that quarter-on-quarter (q-o-q) revenue from the segment has doubled from Rm2.3mil in the second quarter of 2022, while the loss has also been reduced by 20.2% from the quarter ended June 30.

“The lower turnover from manufacturing was due to lower activities for its steel pipes and liquefied petroleum (LP) gas cylinders manufacturing divisions, which contributed Rm1.9mil and Rm3.1mil of revenues respectively.

“While the latter continued to be supported with its supply of LPG compact valves, new cylinders and reconditioning/requalification, the performance of the steel pipes division is expected to be weighed by the ongoing absence of new major contracts,” said the research house.

In tandem with its favourable tone for the construction sector next year, it said KKB would be normalising its earnings after rebounding from a loss-making 2016, as well as the improved prospects of KKB securing more jobs in Sarawak.

The research house also expects margins to improve for the construction company in the coming quarters with the easing of building material prices such as steel bars, which has declined for four consecutive months up to October.

“We expect job flows in the nearer term to come from retendering of delayed or abandoned projects as the administration focuses on fixing sick projects, on top of rolling out new infrastructure works,” it added.

Underpinned by the bright outlook, MIDF is upgrading KKB to a “buy” with a target price of RM1.50, having previously downgraded the counter to “hold” after a run-up in its price.