SARAWAK-based KKB Engineering Bhd (KKB) looks set to benefit from more offshore structure fabrication work from Petroliam Nasional Bhd (Petronas) as indicated in the Petronas Activity Outlook (2020 to 2022).
According to Affin Hwang Capital, the number of wellhead platforms is guided to increase from five to eight units to 10 to 13 units. KKB has a good track record in oil and gas (O&G) fabrication jobs, having done those for Repsol, Petronas Carigali and Sapura Fabrication.
“KKB was awarded a six-year frame agreement by Petronas, which allows it to bid for engineering, procurement and construction of fixed offshore structure works. Management is upbeat on the near-term O&G outlook as it is spending RM25 mil to RM30 mil over 2019 to 2020 to upgrade its current fabrication yard, allowing it to execute more projects simultaneously, estimated at three to four wellhead platforms,” said Affin Hwang, noting that the frame agreement would also allow KKB to expand its O&G operations.
This is further corroborated by the group’s order and tender books. Currently, 91% of the group’s order book is for the Pan Borneo Highway Sarawak job through a joint venture with WCT Engineering Bhd, the Sarawak Water Grid Project and O&G-related work packages. This order book is valued at RM700 mil, with earnings visibility until 2021 as of September 2019.
The group’s tender book is currently at RM510 mil, of which RM360 mil (about 70%) is O&G-related. Affin Hwang noted that the group is bidding for a few engineering, procurement, construction and commissioning jobs and the Kasawari wellhead platform, with the remainder of the tender book made up of water and civil engineering works.
The company remains upbeat, with the belief that the contract pipeline in Sarawak will remain robust, driven by more water projects, the Sabah-Sarawak Link Road (estimated RM5.2 bil project development) and a methanol plant, which KKB expects to see tenders being awarded to local contractors in 2Q20, which will involve steel fabrication, modules and piping-related jobs.
“Prospects for KKB to expand its construction order book are good, given the Sarawak state government’s plan to accelerate infrastructure spending to improve the water supply and road network within the state,” said Affin Hwang.
It was also noted that the KKB-WCT joint venture is currently undertaking an RM1.3 bil civil works package for the Sarawak stretch of the Pan Borneo Highway project, with the joint venture also bidding for other road projects in Sarawak, such as work packages for the RM5 bil Second Trunk Road and RM5.2 bil Sabah-Sarawak Link Road projects.
Affin Hwang also noted that KKB has a strong balance sheet, and is in a net cash position, having a war chest of RM89.8 mil. The group is also noted as paying out an average of four sen per share since their 2014 financial year, which translates to a net dividend yield of 2.8%.
KKB posted a significant jump in revenue to RM403 mil in the nine months ended Sept 30, 2019, from RM269.9 mil a year ago, driven by higher civil construction and steel fabrication contributions, higher billings for ongoing O&G jobs as well as Sarawak Water Grid projects.
Its net profit for the nine months just ended more than doubled to RM28 mil from RM10 mil a year ago.
At midday break, KKB’s shares were last traded at RM1.42, up a sen, with 20,200 shares changing hands. – Dec 27, 2019
