KNM Group - Signs of better times?
New orders picking up
Signs of better times? KNM has secured RM1.0b worth of jobs thus far, double what it secured in 1H09. Its current order book is at the year-high of RM2.4b compared to RM1.8b in the beginning of the year. Its average selling price (ASP) has also improved moderately to close to RM20,000/MT from a low of RM18,500 in 2009 (record high of RM22,500 in 2008). We understand KNM is eyeing several sizable contracts (>RM100m) in South East Asia and Europe. We expect accelerating oil & gas activities for the rest of this year to drive future demand for process equipment.
Extending market reach, benefit from tax incentive. KNM may add two more plants to extend its global market presence. But the investments would be small at c.RM40m with a potential JV local partner. KNM expanded its Saudi Arabia capacity recently, bringing total group capacity to 157,300MT/year (+6.8%). Meanwhile, works are currently underway to upgrade its Kuantan plant to undertake manufacturing of BORSIG’s boilers for the global market. There is also a plan to package BORSIG’s membrane equipments in Malaysia to take advantage of the RM1.4b tax incentive and improve overall cost efficiency.
Maintain Hold and RM0.55 TP. We are maintaining our earnings assumptions at this juncture, as utilisation rate remains low at 60% and margins are still expected to be sluggish in 2Q10. Re-rating catalyst for the stock would depend on job orders in 2H10. We reiterate our Hold rating for KNM with a target price of RM0.55, pegged to 9.0x FY11F PE. The counter is currently trading at 8.4x FY11F PE against the sector’s 8.8x and the region’s 15.0x.
- Order book at year-high of RM2.4b; eyeing several sizable contracts in SEA and Europe
- To take advantage of tax incentives by bringing more production home
- Maintain Hold; re-rating hinges on contract flows in 2H10
Signs of better times? KNM has secured RM1.0b worth of jobs thus far, double what it secured in 1H09. Its current order book is at the year-high of RM2.4b compared to RM1.8b in the beginning of the year. Its average selling price (ASP) has also improved moderately to close to RM20,000/MT from a low of RM18,500 in 2009 (record high of RM22,500 in 2008). We understand KNM is eyeing several sizable contracts (>RM100m) in South East Asia and Europe. We expect accelerating oil & gas activities for the rest of this year to drive future demand for process equipment.
Extending market reach, benefit from tax incentive. KNM may add two more plants to extend its global market presence. But the investments would be small at c.RM40m with a potential JV local partner. KNM expanded its Saudi Arabia capacity recently, bringing total group capacity to 157,300MT/year (+6.8%). Meanwhile, works are currently underway to upgrade its Kuantan plant to undertake manufacturing of BORSIG’s boilers for the global market. There is also a plan to package BORSIG’s membrane equipments in Malaysia to take advantage of the RM1.4b tax incentive and improve overall cost efficiency.
Maintain Hold and RM0.55 TP. We are maintaining our earnings assumptions at this juncture, as utilisation rate remains low at 60% and margins are still expected to be sluggish in 2Q10. Re-rating catalyst for the stock would depend on job orders in 2H10. We reiterate our Hold rating for KNM with a target price of RM0.55, pegged to 9.0x FY11F PE. The counter is currently trading at 8.4x FY11F PE against the sector’s 8.8x and the region’s 15.0x.
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