KKB Engineering - Tender results to be known in 2-3 months BUY

- We maintain BUY on KKB Engineering, with a fair value of RM1.80/share based on a 10% discount to a sum-of-parts value of RM2.00/share.

- The Star reported today that KKB is one of the frontrunners for the job of constructing Asia Minerals Ltd's (AML) RM790mil manganese ferro alloy smelting plant in Samalaju Industrial Park, Bintulu.

- The contract is expected to be awarded in the next  two to three months. KKB executive director Kho Pok Tong confirmed that the company had tendered for the construction package of the AML smelting plant. 

- He said the bid, comprising 60% engineering and 40% manufacturing jobs, was among the tenders worth RM320mil that KKB had submitted as of 31 March 2012. The results would be known in the second half of the year.

- According to the report, AML chairman Hirotaka Suzuki said the smelter project would be implemented in two phases, with the first targeted for commercial production by July next year and phase II to be operational by end-2014.

- Kho also said KKB had been pre-qualified for the construction job of OM Materials (Sarawak) Sdn Bhd's (OM Sarawak) US$500mil manganese and ferrosilicon alloy smelting facilities in Samalaju Industrial Park and some packages of Petronas Chemicals Group Bhd's US$1.5bil Sabah ammonia urea (SAMUR) project.

- Meanwhile, KKB yesterday also announced that its MoU with Brooke Dockyard has been extended for another six months for more discussions on the terms and conditions of their collaboration.

- Through the collaboration, KKB is planning to diversify into fabrication of jacket and other structures for the offshore oil and gas industry, and marine sector. Kho said the two parties had identified certain projects in the oil and gas industry for their collaboration.

- We maintain our order book assumption of RM300mil for FY12F and of RM380mil each for FY13F and FY14F. KKB on Wednesday released its 1QFY12 results that were below expectations.

- Nonetheless, we maintain our BUY for KKB for: 1) its potential engineering and construction jobs within Samalaju;  2) its water pipes supply for the rural water projects; and 3) decent dividend yield of 6%.   

Source: AmeSecurities