KNM re-engages investing community

KNM re-engages investing community

KUALA LUMPUR: KNM Group Bhd is back on the investors’ radar screen as the process equipment maker repositions itself to undertake more global businesses. The company whose share capital base shrank after a corporate exercise, re-engaged analysts in a briefing last Monday following a 1½-year hiatus.

Analysts said KNM is not only expanding its geographical markets, but also widening its scope of offerings to include technology and plant services which fetch better margins amid less competition.

“The positive outlook presented has reaffirmed our current view on the stock. We expect the company’s earnings to continue improving and foresee limited downside risk at this juncture,” RHB Research Institute wrote in a note yesterday. The research firm is retaining its outperform call on the stock with a fair value of RM2.33 post consolidation of the company’s shares.

KNM rose 11% to close at RM2.14 yesterday with some 12 million shares done. RHB’s target price for KNM is based on a forward price-to-earnings ratio (PER) of 13 times FY11 earnings, a discount to the research house’s one-year multiple of 18 times for the oil and gas sector.

For now, RHB said its valuations for KNM are reasonable until the company is able to convince investors that its recovery in earnings is sustainable.

KNM executive chairman and CEO Lee Swee Eng could not be reached for comment at the time of writing.

ECM Libra Investment Bank, meanwhile, maintained its buy call on the stock with a target price of RM2.29. ECM Libra said it had revised upwards its valuations for KNM in FY11 and FY12 ending Dec 31, to reflect better utilisation rates for the process equipment maker’s facilities, especially in Canada. This comes at a time when oil sands projects there have been revived against a backdrop of rising crude oil prices.

“The group appears to be on the road to recovery and proof has been in their numbers,” ECM Libra wrote in a note yesterday. The research house which valued KNM based on a historical PER of less than 10 times, however said it was still too soon to upgrade the stock to the average of 21 times as the company “still has a long way to recover”.

KNM made news in recent weeks with further inroads into global markets. Last month, it secured a US$216 million (RM680 million) gas condensate project in Uzbekistan from Russian oil and gas major Lukoil Uzbekistan Operating Co.

Last Wednesday, KNM and South Africa-listed Aveng Ltd formed a 49%:51% joint-venture, enabling KNM to capitalise on its foreign partner’s business links in the energy and mining business.

According to RHB Research, apart from opportunities in the process equipment market, the collaboration is expected to offer a platform to facilitate KNM’s foray into nuclear energy. This is in anticipation that South Africa will revive its plan to construct a nuclear plant this year.

Including the RM680 million Uzbekistan project, the value of projects secured by KNM this year comes to RM1.1 billion, according to KNM’s updates to the stock exchange.

KNM recently settled an old score with a Canadian client Fort Hills Energy LP where KNM received payment from the latter for the termination of a contract in the North American country.

Corporate developments had also dragged KNM into the spotlight. Last August, the firm said it planned to undertake a share consolidation where four shares of 25 sen each would be merged into one share of RM1. The resultant consolidated one billion shares were listed on the Malaysian bourse yesterday.

In February this year, KNM’s Lee via private vehicle BlueFire Capital Group Ltd, had planned to acquire the entire business and undertakings of the company at 90 sen a share.

The proposal, however, failed to materialise as BlueFire and its partners GS Capital Partners VI Fund LP and Mettiz Capital Ltd, were unable to reach an agreement on the pricing of the acquisition.

http://www.theedgemalaysia.com/highlights/178290-knm-re-engages-investing-community.html

This article appeared in The Edge Financial Daily, December 9, 2010.