KNM maintains growth via renewable energy

by MARK RAO/ pic by TMR GRAPHIC

KNM Group Bhd’s Italian unit, FBM Hudson Italiana SpA, has received a RM36.142 million contract from Technip Italy SpA to fabrication and supply of air cooler heat exchangers.

In a filing to Bursa Malaysia yesterday, KNM noted the contract was part of the expansion and modernisation projects of the Middle East Oil Refinery located at Alexandria, Egypt, as managed by the Middle East Refining Ltd.

The company has 14 months to deliver on the contract.

KNM’s return to the black in the first quarter (1Q) after its diversification into the renewable energy (RE) business to provide a stable income base began to bear fruit.

The equipment manufacturer and engineering services provider for the energy and petrochemical industries are among the hot stocks in the market after the company’s shares gained 11 sen or RM283.8 million in value since June 27 this year, to close at 30 sen yesterday. This comes shortly after the company broke five consecutive quarters of losses to post a net profit of RM18.44 million in 1Q ended March 31.

The company had slipped to a RM774.88 million net loss for 2018 after recognising a one-off reversal on a non-cash deferred tax asset amounting to RM346.64 million on its books, but has since lowered its cost base and improved operational efficiency to return to profitability in 1Q.

Its 400,000 litre-per day capacity bio-ethanol production plant in Thailand commenced operations in September, 2017, positioning the company to diversify away from project-based contracts and into recurring-income streams via RE.

“KNM’s latest quarterly showing generated a lot of buzz around the company. It also kicked-off its RE business, positioning the company on a stronger footing financially this year,” an industry analyst told The Malaysian Reserve. “The company further brought its cost down and reduced its headcount — key criteria for continued growth (this year).”

Total expenses incurred by the company was reduced by 67.4% to RM25.18 million in 1Q from RM77.18 million in 1Q18, at the same time cash and cash equivalents more than doubled to RM289.94 million (1Q18: RM140.64 million).

This was due to leaner operations achieved, resulting in lower operating and administration expenses. Company borrowings, however, remained high at RM1.39 billion.

The hefty impairment recognised last year should allow the company to report clean earnings for the remainder quarters in 2019.

The management identified its Thai-based asset as the key for the company to expand its RE business, while capitalising on long-term ethanol demand.

“Demand for ethanol between 2018 and 2020 is forecast to grow by an average of 4% from four to 4.5 million litres per day,” the company said in its latest annual report.

“(This is) due to yearly increases in fuel consumption that is expected to range between 3% to 4% year-on-year (YoY) coupled with a steady increase in the fraction of the national vehicle fleet that is capable of running on fuel with high ethanol content.”

The company’s revenue grew 7.6% YoY to RM363.38 million for 1Q19 on stronger turnover from European operations, which contributed to the bulk or 77% of the total revenue brought in.

This was due to improved profit margins and the increase in new orders — predominately from the petrochemical industries.

KNM managed to secure a total of RM161.41 million in contracts since April 30 this year, providing a good earnings base in the meantime.