Reiterate BUY; undemanding valuations
FY15 core results were in line, with a stronger QoQ performance in 4Q15. While RAPID will remain part of its core theme, KNM’s successful foray into the renewable energy space is a key re-rating catalyst. Valuations are undemanding. Maintain BUY with an unchanged MYR0.80 TP, based on 0.4x EV/ backlog, which implies 9x 2017 PER.4Q15 core earnings jumped 6x QoQ
Core net profit of MYR17m (6x QoQ) in 4Q15 brought FY15 core earnings to MYR46m (+24% YoY), in line with our estimates but below consensus’ MYR80m. While topline was flattish QoQ in 4Q15, the stronger bottomline performance was driven by: (i) higher gross profit at its Asia & Oceania (+212% to MYR46m) and Europe (+29% to MYR68m) operations and (ii) lower taxes (-26% to MYR20m). The cost savings from the sale of its Australia-based KPL operations helped the Oceania business while German-based Borsig’s operations were the key anchor to Europe’s business.High hopes for 2016; RAPID to anchor
Our forecasts are unchanged. We expect a 2x jump in YoY earnings in 2016, driven by its RAPID and EPCC works. We expect KNM to benefit from the upcoming RAPID petrochemical EPCC tender packages, which are expected to be awarded in 2016. Our model assumes an USD1b job wins from RAPID alone (1/3 secured to-date).Move into renewable energy is key catalyst
The key investment thesis to KNM is its transformation into a renewable energy play, as it remodels its business, from cyclical to a more secured, recurring based income model. The Thai-based ethanol renewable energy plant will be its maiden venture into a BOO business. Securing the much delayed but anticipated Peterborough job is a key catalyst.Source: Maybank Research - 26 Feb 2016
KNM (7164) - KNM - FY15 in line; a renewable energy play
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