More upside for KNM with RM581mil contract;
Shares in oil and gas service provider KNM Group Bhd have been on the rise this week, leading up to the company’s announcement of a £88mil (RM581mil) contract win.
Following the announcement on Oct 7, shares in the company closed the day 8 sen or 16.84% higher at 56 sen, its highest since August. It was also one of the most actively traded stocks on Bursa Malaysia with 161 million shares done.
On Wednesday, the company announced that its unit KNM Process Systems Sdn Bhd was awarded a contract for the engineering, procurement, construction and commissioning (EPCC) of a waste-to-energy facility at Croydon, United Kingdom, from Drenl Ltd.
Traction in KNM continued with shares in the company dominating the most actively traded list on Bursa. The shares closed at 56.5 sen on Oct 9, up 3 sen with 142.7 million shares done.
The contract will last about 27 months after receiving notice to proceed from Drenl.
It was also awarded the operation and maintenance of the waste-to-energy facility subject to the finalisation of the terms and conditions, it said in its filing with Bursa.
The EPCC contract is expected to contribute positively to KNM’s earnings for the financial years ending Dec 31, 2016, 2017 and 2018.
This win is the third in six months, bringing year-to-date wins to about RM1bil. With an estimated gross margin of 20%, analysts expect the contract to contribute about 16% to KNM’s bottom line.
Since the second half of 2014, KNM has secured about RM2bil worth of EPCC contracts. Analysts were positively surprised that KNM was able to replenish its orderbook amid the low oil price environment.
Separately in September, the company bagged a US$42mil (RM183mil) job related to Petronas Pengerang Integrated Complex Project (PIPC) in Johor. It’s 70%-owned subsidiary CNI Engineering and Construction Malaysia Sdn Bhd won the contract from Toyo Thai Malaysia Sdn Bhd for the erection work related to PIPC.
The PIPC contract is expected to contribute to KNM’s earnings for the financial years 2016, 2017 and 2018. — By Wong Wei-Shen (The Star)
Maybank Research is maintaining its “buy” recommendation on oil and gas services provider KNM Group Bhd, with an unchanged target price of RM1.
The brokerage on Thursday said KNM’s recent win of an engineering, procurement, construction and commissioning (EPCC) job worth £88mil (RM581mil) in the United Kingdom was a positive development, as it showed KNM’s commitment and progress to transform its business model.
“We are positive on this development as KNM is committed and on track to remodel its business, from cyclical to steady-income base type,” Maybank Research said.
To recap, KNM received a letter of award from UK-based Drenl Ltd for the EPCC of a waste-to-energy facility at Beddington Lane, Croydon, UK. Drenl is a developer of materials recovery and low carbon renewable energy (RE) projects.
In addition to the EPCC contract, which was expected to take about 27 months to complete, KNM had also been awarded the Operations & Maintenance (O&M) job of the same WTE facility, subject to the finalisation of the terms and conditions.
“The EPCC works (its bread-and-butter) will provide a profit base to the group over the next two years whilst the O&M contract, once finalised, will offer KNM a recurring earnings base,” Maybank Research said.
“KNM was expected to register a 20%-25% gross margin from this EPCC RE job, decent in our view and a net profit contribution of RM25mil to RM35mil per annum,” it added.
Maybank Research said its forecasts remained unchanged for KNM, as it had incorporated RE wins of RM350mil-RM450mil per annum for 2015 to 2016.
“Apart from an earlier Cypark (RM278mil) and the recent Drenl RE job wins secured to-date, KNM is confident of bagging several more works over the next few months (four to six jobs locally and abroad),” it said.
Maybank Research said the key re-rating catalyst for KNM would be the crystallisation of the much-awaited BOO Peterborough WTE project.
The brokerage on Thursday said KNM’s recent win of an engineering, procurement, construction and commissioning (EPCC) job worth £88mil (RM581mil) in the United Kingdom was a positive development, as it showed KNM’s commitment and progress to transform its business model.
“We are positive on this development as KNM is committed and on track to remodel its business, from cyclical to steady-income base type,” Maybank Research said.
To recap, KNM received a letter of award from UK-based Drenl Ltd for the EPCC of a waste-to-energy facility at Beddington Lane, Croydon, UK. Drenl is a developer of materials recovery and low carbon renewable energy (RE) projects.
In addition to the EPCC contract, which was expected to take about 27 months to complete, KNM had also been awarded the Operations & Maintenance (O&M) job of the same WTE facility, subject to the finalisation of the terms and conditions.
“The EPCC works (its bread-and-butter) will provide a profit base to the group over the next two years whilst the O&M contract, once finalised, will offer KNM a recurring earnings base,” Maybank Research said.
“KNM was expected to register a 20%-25% gross margin from this EPCC RE job, decent in our view and a net profit contribution of RM25mil to RM35mil per annum,” it added.
Maybank Research said its forecasts remained unchanged for KNM, as it had incorporated RE wins of RM350mil-RM450mil per annum for 2015 to 2016.
“Apart from an earlier Cypark (RM278mil) and the recent Drenl RE job wins secured to-date, KNM is confident of bagging several more works over the next few months (four to six jobs locally and abroad),” it said.
Maybank Research said the key re-rating catalyst for KNM would be the crystallisation of the much-awaited BOO Peterborough WTE project.
Tip:
As of 11th October, KNM-WA is only sitting at RM0.12, it is still cheap and it is ready to rally in the short term.
Expect KNM-WA to play catch up with its mother share this week