KKB Engineering Bhd is back to a ‘Buy’ at MIDF Amanah Investment Bank Bhd (MIDF Research), with an unchanged target price of RM1.50, despite a massive plunge in its net profit for the latest quarter.
The research house said it had earlier downgraded the stock mainly due to the run up in its share price.
“We remain optimistic on KKB’s prospects as evident from its improving civil construction division. Margins are also expected to improve in the coming quarters with the easing of building material prices such as steel bars, which have 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. Management is also optimistic on being awarded the numerous tenders it is currently pursuing, which will be awarded next year,” it said in a research note released today.
MIDF Research noted that the company’s latest numbers for the third quarter ended Sept 30, 2022 (3Q22), were below expectations.
Its net profit for the three months from July to September was down 89% to RM1.03 million on RM102 million in turnover, it said in an exchange filing yesterday. For the first nine months, it posted a net profit of RM5.03 million, down 77% from the year before, on the back of lower margin contributions for both the engineering and manufacturing sectors.
“The highly competitive environment coupled with escalation of cost due to inflationary pressure, volatility of global raw material prices and higher input costs have led to the reduction in profit margins,” the company said in the filing.
MIDF Research said the target price was justified in view of the group’s normalising earnings after rebounding from its net loss in financial year 2016 (FY16) and the improved prospects of it securing more jobs in Sarawak.
The stock ended yesterday’s trading at RM1.32. — TMR / pic source kkbeb.com.my