Author: kltrader | Publish date: Fri, 8 Aug 09:24
Estimated to secure USD280m worth of works from Sinopec’s USD1.3b package win.
Raising 2015/16 earnings by 44%/40% to account for higher jobs wins (+MYR1b to MYR3b p.a.).
Changed valuation methodology to backlog-based; TP raised to MYR1.50 (+50%) on 0.7x EV/backlog. BUY.
In total, we expect KNM to secure about USD800m-USD1b worth of jobs from RAPID alone over the next 3 years (2015-17). We expect subsequent contract flows on RAPID works over the next few months, in favour of KNM. For this, we have raised our 2015-16 earnings forecasts by 44%/40%, taking into account the higher backlog orders (+50% to MYR3b p.a.) expectations.
Similar to our other cyclical, order-driven oil & gas stock coverage, we now adopt the backlog-based valuation method on KNM. Orders momentum should drive price performance and this new approach best reflects KNM’s prospects. For this, we have raised our TP to MYR1.50 (+50sen), based on 0.7x EV/backlog multiple for 2015. The 0.7x reflects its 3-year historical threshold. We have assumed a MYR3b order backlog for 2015
Source: Maybank Research - 8 Aug 2014
Raising 2015/16 earnings by 44%/40% to account for higher jobs wins (+MYR1b to MYR3b p.a.).
Changed valuation methodology to backlog-based; TP raised to MYR1.50 (+50%) on 0.7x EV/backlog. BUY.
What’s New
RAPID's mega packages are finally out. Sinopec Engineering has secured a Letter of Award from PETRONAS for the RAPID package 2 job. This EPCC contract is valued at about USD1.33bn. KNM is one of Sinopec's selected subcontractors for this package, having been involved in the bidding process with Sinopec. While not stated in the Bursa announcement, we believe that KNM’s effective portion is c.USD280m. Works are likely to start in early 2015, over 2 years.What’s Our View
This is positive development for KNM. Apart from this package, we understand that KNM would also have exposure to several other packages. According to market sources, apart from Sinopec, CITC, Technicas Reunidaf, Petrofac and Toyo are the EPCC winners for the other 4 RAPID-related packages.In total, we expect KNM to secure about USD800m-USD1b worth of jobs from RAPID alone over the next 3 years (2015-17). We expect subsequent contract flows on RAPID works over the next few months, in favour of KNM. For this, we have raised our 2015-16 earnings forecasts by 44%/40%, taking into account the higher backlog orders (+50% to MYR3b p.a.) expectations.
Similar to our other cyclical, order-driven oil & gas stock coverage, we now adopt the backlog-based valuation method on KNM. Orders momentum should drive price performance and this new approach best reflects KNM’s prospects. For this, we have raised our TP to MYR1.50 (+50sen), based on 0.7x EV/backlog multiple for 2015. The 0.7x reflects its 3-year historical threshold. We have assumed a MYR3b order backlog for 2015
Source: Maybank Research - 8 Aug 2014
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