| A record high order book Source | : | HWANGDBS | ||||||||
| Stock | : | KNM | Price Target | : | 3.35 | | | Price Call | : | BUY | |
| Last Price | : | 1.85 | | | Upside/Downside | : |  +1.50 (81.08%) | ||||
(June 14, RM1.91)
Maintain buy at RM1.90 with target price of RM3.35: At the analysts' briefing on Monday, the management remained optimistic of a recovery in 2011. As at May 2011, KNM had secured RM1.5 billion worth of new orders, taking its order backlog to RM5.5 billion. Its tender book remains strong at RM17 billion, which means it is likely to meet our FY11 target order win of RM3 billion given its historical success rate of 20%. We learned of delays at its RM2.2 billion EnergyPark Peterborough project and the management now expects it to commence next month.
The weaker-than-expected 1Q11 earnings were largely due to recognition of low margin jobs secured in FY09 and early FY10. KNM still has RM1 billion worth of old contracts in its backlog, which we expect to be exhausted by FY11. We cut FY11F earnings by 15% because the old projects, which will account for circa 50% of revenue this year, will yield lower margins. However, KNM's prospects remain buoyant, as its large order book will support long-term earnings visibility. Hence, we are retaining our forecasts for FY12.
KNM is currently trading at an attractive valuation of only eight times FY12 EPS, making it one of the cheapest oil and gas stocks in Malaysia. The recent
selldown by investors due to disappointing 1Q11 earnings is excessive. We remain bullish on KNM's long-term prospect and the full impact of normalised margins will be reflected in FY12. We recommend investors to buy on weakness. ' HwangDBS Vickers, June 14
This article appeared in The Edge Financial Daily, June 15, 2011.
Brace for further headwinds
Date: 14/06/2011| Source | : | MAYBANK | ||||||||
| Stock | : | KNM | Price Target | : | 2.00 | | | Price Call | : | HOLD | |
| Last Price | : | 1.86 | | | Upside/Downside | : | +0.14 (7.52%) | ||||
(June 14, RM1.91)
Downgrade to hold at RM1.90 with revised target price of RM2 (from RM4.35): Our initial forecasts are too optimistic and the management is guiding for lower profits as earnings could remain weak over the next few quarters. This is disappointing for we had expected earnings to rebound on the new orders secured in the past 12 months. The financing for the Peterborough project is still unresolved. We lower our target price to RM2 based on reduced PE multiple target of 10 times (previously 14 times) as we also cutearnings forecasts.
Although order book build-up momentum has improved, earnings will remain depressed over the next nine months as KNM still needs to deliver RM1 billion worth of jobs committed under razor-thin earnings before interest and tax (Ebit) margins (5%-8%). These low margin orders account for 18% of its RM5.5 billion outstanding order book as at May 2011. Consequently, internal targets for 2011 revenue and Ebitda have been lowered by 8% and 26% to RM2.2 billion and RM270 million respectively.
We have cut our earnings forecasts by 18% to 35% for 2011-13, taking into account the downbeat prospect in the short mid-term period. We now expect KNM to deliver a lower net profit of RM139 million for 2011, RM190 million for 2012 and RM300 million for 2013. This is based on lower utilisation rate assumptions of 95,000 tonnes per annum for 2011 (-5%) and 100,000 tonnes per annum for 2012 (-9%) and reduced Ebit margin assumptions of 12.3% (-3.4 percentage points) and 14.1% (-4.1 percentage points) for 2011-12.
Its share price has fallen 25% post the poor 1QFY11 results which were sub-par. Its 1QFY11 net profit of RM19 million made up just 9% of our earlier full-year forecast, but this was aided by tax incentives (+RM18 million) which partially offset weak margins (4.1% Ebit, -1.3 percentage points quarter-on-quarter). While theshare price should have by now substantially priced in the lower earnings expectations for the near term, the upside will be capped by the negative outlook surrounding its earnings deliverability. We reiterate that top line recovery is visible but KNM needs to deliver its normalised margins on the bottom line to rerate. ''' Maybank IB, June 14
This article appeared in The Edge Financial Daily, June 15, 2011.
KNM remains a Buy at HDBSVR
Date: 14/06/2011| Source | : | HWANGDBS | ||||||||
| Stock | : | KNM | Price Target | : | 3.35 | | | Price Call | : | BUY | |
| Last Price | : | 1.87 | | | Upside/Downside | : | +1.48 (79.14%) | ||||
It said on Tuesday, June 14 KNM which is currently trading at attractive valuation of only 8x FY12 EPS, making it one of the cheapest O&G stocks in Malaysia.
'The recent sell-down by investors, due to disappointing 1Q11 earnings, is excessive. We remain bullish on KNM's long-term prospect and the full impact of normalised margins will be reflected in FY12. We recommend investors to buy on weakness,' it said
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