KNM Group Bhd
(Dec 22, RM2.91)
BUY at RM2.69 with revised target price of RM3.50 (from RM2.35): KNM announced that its wholly owned subsidiary, KNM Process Systems, had secured the £450 million (RM2.2 billion) EnergyPark Peterborough contract.
This brings contracts secured year-to-date to RM4.4 billion with an order book size of RM4.6 billion, an all-time high.
We expect the recovery in earnings to continue in the next few quarters as the company rides on the higher capacity utilisation and better margin jobs secured post-2009.
Going forward, we expect the domestic market to play a crucial role in the company’s recovery story.
Near term, we see news flow to come from its latest JV which is targeting potential jobs in East Malaysia. We upgrade FY11/12F earnings by 24% and 9%, respectively, to factor in higher contract wins in 2010 and better margins on new jobs secured.
We maintain our “buy” call on KNM and revise upwards our target price to RM3.50 to reflect the earnings upgrade and higher FY11 price-earnings multiple of 15.5 times, based on a 15% premium to its historical PER average of 13.5 times.
We believe the higher valuation is justified supported by the positive sentiment on oil & gas companies, particularly on rising domestic jobs.
KNM is also poised to benefit from growing global opportunities. KNM is trading at FY11 PER of 11.9 times against local and regional peer’s average of 15.4 times and 18.6 times, respectively. — HwangDBS Vickers Research, Dec 22
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