Wednesday, March 9, 2011

KNM back to earnings guidance mode

PETALING JAYA: After a two-year hiatus, the management of KNM Group Bhd has started to give earnings guidance again.

According to AmResearch in a report yesterday, KNM’s management had met with analysts earlier in the week and guided earnings before interest, tax, depreciation and amortisation (Ebitda) of RM363 million for its FY11 (ending Dec 31, 2011), while the Ebitda for FY12 is targeted at RM564 million.

It added that the process equipment manufacturer for the oil and gas industry expects gross profit margins for FY11 and FY12 to be between 21% and 23%, which is higher compared with 19% in FY10.

Maybank Investment Bank (IB) research noted that KNM’s management expects to deliver a total revenue of RM2.4 billion in FY11 and RM3.4 billion in FY12, which is significantly higher compared with the total revenue in FY10, which stood at RM1.6 billion.

“KNM is confident of securing higher RM3 billion to RM3.5 billion new jobs per annum in 2011 to 2012 with higher quality (thus better margin) potentials. Order book backlog now stands at RM5.4 billion,” Maybank IB research noted in its report.

“Job momentum is rising with orders to come from key sectors; oil and gas, minerals, power, renewable energy and environment, and industrial services. Margins are set to improve, as KNM secures higher proportion of high-margin works,” it added.

The local research house has a “buy call” on the stock with an unchanged target price of RM4.35 per share, based on 14 times 2012 EPS.

Meanwhile, AmResearch in its report said KNM’s tenders worth RM17 billion could add another RM3 billion to the existing order book, assuming a success rate of 20%.

“We reiterate our “buy” call on KNM with an unchanged fair value of RM3.25 per share, pegged to an unchanged FY11F PE of 14 times — at parity to the stock’s one-year rolling forward PE average over the past three years,” it noted.

The research house has a “buy” call on the stock, with an unchanged fair value of RM3.25 per share.

While it seems like KNM is back in favour with the analysts, the same cannot be said of fund managers.

According to TA Investment Management’s chief investment officer Choo Swee Kee, the investing community is still staying on the sidelines when it comes to KNM due to the company’s unfavourable results in 4QFY10 where it saw its net profit plunging 64%.

“The 4QFY10 results have been below expectation, which come as a surprise to the investing community. Hence, we have to carefully evaluate the whole situation first before we increase our shareholding in the company,” he explained.

“We also need to see how the whole situation in the Middle East unfolds, as KNM has some exposure in the region. If things turn out bad, the market will be adversely affected,” he said, adding that the investing community is still waiting for more news on this matter.

Maybank IB research in its report yesterday said that while the crisis in the Middle East and North African oil exporting countries such as Libya and Tunisia is a concern, KNM has no operating presence in the affected countries.

It added that 24% of KNM’s order book comes from Saudi Arabia and the United Arab Emirates (UAE) while its manufacturing facilities are based in Jebel Ali in the UAE.

“KNM does not expect any job delay or suspension to its activities,” it noted.

Meanwhile, AmResearch in its report noted that talk of foreign acquisitions by KNM was purely speculative at this stage but management indicated interest in exploring nuclear energy projects, providing alternatives to fossil fuels.

KNM’s share price rose 12 sen yesterday to close at RM2.65.

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