MIDF Research has reiterated its buy call on KNM GROUP BHD [] at 80.5 sen with an unchanged target price of RM1 as it viewed the company’s strategic acquisition of a 50% equity stake in Verwater Industrial Services (M) Sdn Bhd (VISM) positively.
It said the acquisition was timely from the perspective of order book replenishment.
VISM is principally involved in relocating and jacking of tanks, catalyst change out and chemical cleaning works. It is privately owned by the owner of Verwater Group of Companies, which is based in the Netherlands.
MIDF Research said the Verwater Group was recently awarded a project to develop a one million tonne oil storage terminal in Malaysia for €220 million (RM1.12 billion) by Lenstar Investment Ltd.
“We suspect the main motive for the acquisition is to capture the said project.
“We believe that KNM will be executing the engineering, procurement, CONSTRUCTION [] and commissioning (EPCC) and fabrication portion, which amounts to circa RM560 million, which will be positively reflected in the group’s FY10-11 earnings,” it said.
Actual works are expected to be initiated by November, and according to KNM, the company might be awarded the project management portion.
MIDF Research said that KNM had indicated that the margin to be expected from the fabrication and EPCC portion was about 20%, noting that the research house considered this to be rather high.
“The contract will span over 1.5 to two years,” it said.
The research house said the execution of the contract could grow earnings per share (EPS) for 2010 by 8% to 12.67 sen and for 2011 by 0.92 sen to 12.81 sen. However, it had yet to factor the earnings potential from this contract into KNM’s FY10 earnings.
KNM’s current order book stood at RM3.2 billion (including the RM560 million EPCC job), while its current tender book was estimated at RM14 billion.
The research house said it was confident that KNM could capture 20% of bid jobs based on the group’s track performance and historical success rate.
“Currently, the counter is still trading at 8.1 times EPS 2009, which is still attractive relative to its local peers’ PER (price-earnings ratio) 2009 of 10 times and regional peers’ 19.5 times. KNM has gained 85% year to date and outperformed the KLCI by 48.8 percentage points,” it said.
Last Friday, KNM fell 1.5 sen to close at 79 sen.
It said the acquisition was timely from the perspective of order book replenishment.
VISM is principally involved in relocating and jacking of tanks, catalyst change out and chemical cleaning works. It is privately owned by the owner of Verwater Group of Companies, which is based in the Netherlands.
MIDF Research said the Verwater Group was recently awarded a project to develop a one million tonne oil storage terminal in Malaysia for €220 million (RM1.12 billion) by Lenstar Investment Ltd.
“We suspect the main motive for the acquisition is to capture the said project.
“We believe that KNM will be executing the engineering, procurement, CONSTRUCTION [] and commissioning (EPCC) and fabrication portion, which amounts to circa RM560 million, which will be positively reflected in the group’s FY10-11 earnings,” it said.
Actual works are expected to be initiated by November, and according to KNM, the company might be awarded the project management portion.
MIDF Research said that KNM had indicated that the margin to be expected from the fabrication and EPCC portion was about 20%, noting that the research house considered this to be rather high.
“The contract will span over 1.5 to two years,” it said.
The research house said the execution of the contract could grow earnings per share (EPS) for 2010 by 8% to 12.67 sen and for 2011 by 0.92 sen to 12.81 sen. However, it had yet to factor the earnings potential from this contract into KNM’s FY10 earnings.
KNM’s current order book stood at RM3.2 billion (including the RM560 million EPCC job), while its current tender book was estimated at RM14 billion.
The research house said it was confident that KNM could capture 20% of bid jobs based on the group’s track performance and historical success rate.
“Currently, the counter is still trading at 8.1 times EPS 2009, which is still attractive relative to its local peers’ PER (price-earnings ratio) 2009 of 10 times and regional peers’ 19.5 times. KNM has gained 85% year to date and outperformed the KLCI by 48.8 percentage points,” it said.
Last Friday, KNM fell 1.5 sen to close at 79 sen.