KNM Group Bhd
(April 10, 63.5 sen)
Maintain buy with a target price (TP) of 88 sen: KNM Group Bhd (KNM) announced contracts with a total value of RM204 million for year to date in financial year 2015 (FY15).

The contract details are: Refinery and Petrochemical Integrated Development (Rapid) subcontractor contract from Toyo Engineering (Package 5) for RM120 million; Rapid subcontractor contract from Technicas (Package 3) for RM54.6 million; and Turkmengas petrochemical complex project for RM29 million.

Contracts’ period are for between 12 and 18 months.

Total contract win from Rapidcurrently is around RM1.2 billion. We maintain our earnings forecasts as we have already factored in a total of RM2.2 billion in Rapid-related contracts or RM540 million per annum based on a contract duration of four years.

We believe our earnings forecast in FY15 is fairly achievable as we only factored in RM270 million revenue from Rapid and we only expect Rapid-related contracts to contribute in the second half of 2015.

We are positive on the contract wins. KNM being among the largest process equipment manufacturer should be one of the main beneficiaries of the Rapid project.

With the Rapid project proceeding, we expect to see a continuous contract newsflow. We understand that KNM has a good chance to secure more subcontractor jobs from some refinery packages in the near term.

In addition, KNM has also submitted bids for subcontractor jobs for the other packages of refinery plant and engineering, procurement, construction and commissioning contract for tank farms and other associated facilities.

The recent joint venture (JV) with Korea-based Hansol Corporation (40:60) will be bidding for some biomass projects in Malaysia.

The contract size is ranging from RM100 million to RM300 million. We understand there are numerous tenders for biomass projects.

Together with United Kingdom’s EnergyPark Peterborough biomass project, we expect to see significant contribution of income from the recurring renewable energy division in the future.

Catalysts are the announcement of more Rapid contract wins; financial closing of EnergyPark Peterborough; additional contribution from renewable energy business in Thailand and/or from JV with Hansol Corp.

Risks are fluctuation in oil price; project execution ability and delay in contracts award.

We maintain our “buy” call with unchanged TP based on unchanged 11 times FY16 price-earnings ratio.

Our TP has not factored in value from EnergyPark Peterborough and Thailand’s renewable energy business yet. — Hong Leong Investment Bank Bhd, April 10

This article first appeared in The Edge Financial Daily, on April 13, 2015.