by ANIS HAZIM / pic source: kkbeb.com.my
RHB Investment Bank Bhd has initiated coverage of KKB Engineering Bhd with a ‘Buy’ call as it foresees multiple catalysts for the group backed by Sarawak’s estimated RM100 billion injections into its economy by 2030, which may support the pipeline for future projects.
KKB Engineering saw a 29% upside with a target price of RM1.85 based on 17 times price-earnings for the financial year of 2023 (FY23F).
“KKB Engineering via its subsidiary, KKB-WCT Joint Venture Sdn Bhd, has been shortlisted to bid for the Second Trunk Road and Sarawak Coastal Highway projects in the state.
“Other opportunities may come from the higher allocation of RM4 billion (from RM2.8 billion) for the Sarawak Water Supply Grid Programme (SWGP),” it said in a note today.
RHB Investment noted that KKB Engineering has a high chance of being involved in the second phase of SWGP — possibly later this year or the next year — as it is no stranger to the programme, having clinched RM250 million worth of projects under its first phase.
Meanwhile, higher Petroliam Nasional Bhd’s (Petronas) capital expenditure should boost KKB Engineering’s steel fabrication business for oil and gas platforms via its subsidiary, OceanMight Sdn Bhd, with it being the only other Petronas-licensed fabricator in Sarawak besides Brooke Dockyard and Engineering Works Corp.
“Moreover, OceanMight’s tie-up with Samsung Engineering Co Ltd could pave the way for overseas job opportunities,” it said.
To date, OceanMight has been awarded 14 contracts worth RM1 billion in total.
The research house also is in view that Sarawak Economic Development Corp’s strategic investment — which owned 10.7% ownership in KKB Engineering — may see it potentially roped in for upcoming state projects aligned with Sarawak’s Post-Covid-19 Development Strategy 2030.
“For instance, Sarawak’s aim to expand its hydrogen value chain could benefit KKB Engineering given its forte in steel fabrication, which may be required in setting up hydrogen plants,” it noted.
RHB Investment also advises investors to look past the slowdown of year-to-date FY22 job wins as it sees KKB Engineering’s gain from the upcoming projects in Sarawak from FY23F, backed by its net cash position.
“As such, FY22F earnings should fall 18% year-on-year (YoY) before a more than 50% YoY growth in FY23F,” it added.
On the downside risks, the research house expected it could be the failure to secure new contracts, higher-than-estimated cost of raw materials and a slowdown in construction activities.
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