RHB Investment Bank Bhd (RHB Research) maintains a BUY call on KKB Engineering Bhd with a revised target price of RM1.83, indicating a potential upside of 25% from the current price of RM1.46. The research house expects the group’s first-quarter FY25 core earnings to be between RM4 million and RM7 million, reflecting year-on-year growth of 15% to 102%, supported by improved job progress.
The firm highlights KKB’s strong foothold in Sarawak and Sabah, positioning it well to capitalise on upcoming mega projects such as the new international airport and deep-sea port in Sarawak, as well as the Ulu Padas Hydroelectric project in Sabah.
As of the end of 4Q24, KKB’s outstanding orderbook stood at approximately RM226 million, with no new job announcements so far in FY25. The tenderbook was valued at around RM254 million, with contract awards expected within the first half of 2025. RHB Research anticipates the tenderbook may have increased given KKB’s ongoing bids for contracts worth about RM500 million, with a success rate estimated between 30% and 40%, and project progress likely to accelerate in FY26.
Further opportunities are identified in Sarawak’s ambitious plans to invest RM6 billion in a rural water supply initiative by 2030, which includes replacing approximately 2,740 kilometres of pipelines. KKB has previously secured over RM100 million in contracts under the Sarawak Water Supply Grid Programme between 2019 and 2020, reinforcing its strong local presence.
The group’s involvement in projects such as the Borneo Convention Centre Kuching II, where it handled structural steelworks for the original centre in 2007, also underscores its capacity to undertake large-scale infrastructure works.
RHB Research has revised down its earnings forecasts for FY25 to FY27 by 14%, 11%, and 1% respectively, reflecting a more cautious view on job wins in FY25, adjusting the target contract value from RM500 million to RM350 million. However, contract replenishment assumptions for FY26 and FY27 remain unchanged at RM600 million and RM500 million.
The target price is based on a 17 times price-to-earnings ratio for FY26 earnings per share, with a 2% ESG premium applied, positioning KKB’s valuation near the five-year mean for the Bursa Malaysia Construction Index during the 2017 upcycle. This valuation is justified by expected benefits from Sarawak’s RM10.8 billion development expenditure planned for 2025, up from RM9 billion in 2024.
RHB Research identifies potential rerating catalysts including faster-than-expected contract wins in the oil and gas fabrication sector, where KKB last secured a project in November 2023. Additionally, emerging water supply schemes in Sabah, possibly secured by Gamuda, represent further growth avenues for KKB. These developments position KKB Engineering as a key beneficiary of ongoing infrastructure and utility projects in East Malaysia.
