KNM to see increased capacity with plant in Saudi Arabia

KUCHING: Oil and gas player, KNM Group Bhd (KNM) hopes to increase its capacity by seven per cent year-on-year (y-o-y) to 157,300 tonnes in tandem with the commencement of its Saudi Arabian plant with a capacity of 10,000 tonnes expected to be completed by the end of 2010.





With this in mind, AmResearch Sdn Bhd (AmResearch) in a research report yesterday highlighted that KNM’s second quarter of the financial year 2010 forecasts (2QFY10F) was likely to be similar to its previous quarter as the group’s plant utilisation rates remained depressed at about 60 per cent compared with the previous year’s 63 per cent.

This was attributed to smallish new book orders of RM1.4 billion in financial year 2009 vis-a-vis an order book of RM3.9 billion as at the end of 2008, added the research firm.

The research house summarised that the group would need to generate a revenue of RM1.5 billion to break even this year, based on KNM’s fixed operating costs of RM360 million for 2009 which included salaries, depreciation, goodwill amortisation and financing costs.

The group was looking at ways to reduce its operating costs but the research house understood that the group would not go to the extent of taking aggressive measures such as closing down its overseas operations completely. This was because KNM was wary of missed opportunities, given the possibility of a recommencement of new overseas projects.

The research house remained cautious on KNM’s target of securing new orders of RM2 billion in FY10 as the group’s quarterly replenishment has struggled to reach RM500 million since the completion of the Borsig GmbH acquisition in June 2008.

According to the research report, KNM’s tender book of RM14 billion originated mainly from overseas projects with local jobs only representing five per cent. Nonetheless, Asia was still its largest market segment at 48 per cent, followed by Europe at 18 per cent and Oceania at 11 per cent.

Going forward, the group had expressed some interest in the revived oil and gas terminal in Kimanis, Sabah as part of a foreign-led consortium. Its potential participation might account for 20 per cent of the estimated project value of RM2 billion but this had not been included in the group’s order book.

The management also indicated that the larger proportion of new orders over the next two quarters was likely to come from overseas, with European countries actively investing in bio-mass power projects on the back of growing environmental concerns.

To date, the company’s order book of RM2.6 billion currently included the RM500 million Verwater crude oil storage terminal and marine facilities project in Yan, Kedah which had not secured financing at this stage.

On top of that, KNM has indicated that a positive tax charge of RM90 million annually was likely to be the maximum which can be expected over the next three years.

To recap, the Ministry of Finance had approved a total tax incentive of RM1.4 billion arising from the acquisition of Borsig GmbH which was bought for euros 350 million. The tax incentive, highlighted the research house, was spread over four years which implied that up to RM356 million annually could be used to offset KNM’s Malaysian-based statutory income.

As the group’s overseas income could not be used to offset this tax credit, the group planned to shift as much as its fabrication jobs to Malaysia gradually. AmResearch pegged KNM at RM0.42 per share.


-- by Borneo Post