Better prospects
• RM450m new project from JV with Verwater for oil storage tank in Malaysia • Contract flow has picked up since July 09
• Maintain Buy for more new wins and attractive valuations. RM450m new project from JV with Verwater. KNM has invested in a 50% stake in Verwater Industrial Services SB (VISM). The Verwater Group has secured a Euro220m contract from Lenstar Investment Ltd for an oil storage terminal in Kedah, Malaysia. KNM’s management indicated that VISM would be the project manager for the project under Verwater valued at between Euro180-200m. About Euro90m (RM450m) worth of fabrication jobs will be awarded to KNM over the next 1-2 years, and it will also enjoy a share of project management profit under its 50% stake in VISM.
Encouraging new wins. KNM has secured RM900m new wins YTD-2009, with RM400m new projects secured in the last 3 months. Together with the project from Verwater, KNM’s YTD-2009 new wins amounts to RM1.35b. While the estimated 20% gross margin for the
oil storage tank project under VISM is much lower than KNM’s average of 25%, we expect KNM to continue to secure new jobs to compensate for lower margins given the recovery of crude oil price. Maintain Buy for more new wins and attractive valuation. KNM is poised to secure new contracts as new projects from the Middle East have started to flow through. New
developments at the Northern corridor of Malaysia and Gorgan of Australia could also lead to more projects. Maintain Buy and RM1.10 target price based on 10x FY10F PE, which is its mid-cycle valuation. KNM is now trading at attractive 8x FY10F PE against local and
regional peers’ averages of 9x and 14x.
Analyst
June Ng
5 comments:
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