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2009-10-06

KNM Update Report From HWangDBS

KNM Group (RM0.76; Buy; Price Target: RM1.10; KNMG MK)
Secures RM155m new contracts

KNM announced yesterday that its subsidiaries, FBM-KNM FZCO (“FBM”), KNM Process Systems Sdn Bhd (“KNMPS”) and Borsig Boiler Systems GmbH (“Borsig”), have secured RM155m new orders. The new orders include:-

  1. FBM, from Danieli & C Officine Meccantiche SpA, for Reactor Vessels for the Gulf Steel Plant Project in Egypt;
  2. KNMPS, from Technip Itally SpA, for Shop Assembled Columns for the Jubail Export Refinery Project in Saudi Arabia; and
  3. Borsig, from EdeA V.O.F., for the engineering, supply and installation of Steam Boilers at Chemelot Industrial Estate in Geleen, Netherlands.
























The new order win is in line with our view that contract flow for the oil and gas sector has picked-up following the stronger crude oil price and completion of cost review for some of the outstanding projects. Contract flow has picked up since July 09 for KNM, with RM1.5b new wins for YTD09. We estimate average EBIT margin of 25% for the RM155m new projects, with EBIT contribution of RM38.8m to be recognised over the next 1-2 years. KNM is poised to secure new contracts as new projects from the Middles East have started to flow through. New development at the Northern corridor of Malaysia and Australia (KNM is bidding for c.US$300m worth of jobs at Gorgon), could also lead to more projects.

Maintain Buy and RM1.10 target price based on 10x FY10F PE, which is its midcycle valuation. KNM is now trading at attractive 7x FY10F PE against local and regional peers’ averages of 9x and 15x.

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