I have 3 lots of KNM. He he he.
Written by The Edge Financial Daily
Monday, 26 October 2009 14:13
MAYBANK Investment Bank (Maybank IB) turns positive on KNM GROUP BHD [] in anticipation of more contracts in the coming financial year for the oil and gas (O&G) process equipment maker. This comes against the backdrop of a recovery in crude oil prices underpinned by a weaker US dollar.
In a note to clients recently, Maybank IB said it had raised its fair value for KNM shares by 47.8% or 33 sen to RM1.02 from 69 sen previously. KNM’s net profit estimates for financial years (FY) ending December 2010 and 2011 were raised by 16% and 28%, respectively.
However, earnings per share (EPS) forecast for FY09 was reduced by 10%, taking into account the possibility of weaker earnings for the second half.
“We have turned optimistic ahead of a recovery in orders and in light of undemanding valuations. KNM is now among the better alpha plays on the weaker US dollar vis-a-vis stronger commodities price theme, backed by its liquidity premium,” Maybank IB wrote in the note.
The research house, which upgraded KNM to a buy from sell, said at its target price of RM1.02, the stock was trading at a price-to-earnings ratio (PER) of 12 times FY11 earnings which is still deemed cheaper than valuations of global peers which were trading at 14 to 19 times.
Enquiries for KNM’s expertise are on the rise.
According to Maybank IB, 50% of KNM’s RM14 billion worth of tenders had been activated compared with the 10% to 15% seen six months ago. It is expected to secure new jobs locally besides contracts from Papua New Guinea, Australia and the Middle East.
“We think KNM stands a strong chance of winning another RM400 million-RM500 million contract from Verwater alone for Phase 2 of the storage terminal and marine facilities project in Yan, Kedah.”
In Africa, KNM’s intended venture into Chad is likely to be off unless it secures bank loans for the Sedigi oilfield project.
“The market would react positively should KNM drop its interest in Chad as a turnkey contractor or just surface as a sub-contractor for this project considering the security, execution and financial risks involved,” Maybank IB said.
For now, job replenishment risk in KNM is abating, it said, considering that its outstanding order book had stabilised at RM2.7 billion as at September this year.
Maybank IB said this was an encouraging sign as KNM’s outstanding jobs have been declining over the past two quarters after touching a high of RM4.3 billion in December 2008.
Last Friday, KNM closed unchanged at 85 sen.