Stock Name: KNM
Company Name: KNM GROUP BHD
KNM Group Bhd
(July 26, RM1.90)
Maintain buy at RM1.75 with target price RM3.20: KNM Group announced yesterday that it and Zecon Bhd have entered into heads of agreement (HoAs) with Gulf Asian Petroleum Sdn Bhd (GAP) to undertake the engineering, procurement, construction and commissioning (EPCC) works for: (i) a petroleum refinery and a polypropylene plant (with a capacity of 150,000 to 200,000 barrels crude oil per day and 400,000 to 525,000 tonnes per year of polypropylene) worth RM15 billion; and (ii) a petroleum product storage terminal facility comprising four terminals (with total storage capacity of 2.328 million cu m) and supporting infrastructure and auxiliaries worth RM2 billion.
The refinery and polypropylene plant and the storage facility are GAP's plan for its integrated petroleum complex (IPC) located at Teluk Ramunia, Johor. The refinery and polypropylene plant is expected to be completed in 40 months and the storage facility in 18. KNM's management indicated that the Johor government has approved a 263ha parcel of land in Teluk Ramunia for the project, and GAP is in discussion with the state government for its equity participation.
We are wary of the viability and execution risks of this IPC development given GAP's unknown track record plus huge investment costs. Given the sizeable project value of RM17 billion and the fact that Asia Petroleum Hub, which is involved in a multibillion-dollar oil terminal in Johor has been placed under receivership recently, we are especially concerned over the funding. GAP might be too ambitious to build another refinery and petrochemicals integrated development (RAPID)-like project, which in contrast is backed by a financially strong Petroleum Nasional Bhd. We are also sceptical that the contract terms and project financials can be finalised and fulfilled within three months. Note that the RAPID project is still at the detailed feasibility study stage and the final decision will only be known end-2011 or early-2012.
Given that the HoAs are basically non-binding, we are taking a more conservative stance of keeping our earnings forecast unchanged at the moment until any letters of award are secured by KNM and pending further details from the management.
We maintain 'buy' with unchanged target price of RM3.20 based on unchanged 14 times FY12 price-earnings ratio, which is within its historical band. KNM's total outstanding order book remains healthy at about RM5.5 billion as at May 2011. Re-rating catalysts include the potential recognition of a RM2.2 billion contract awarded by Peterborough Renewable Energy Ltd starting July 2011, which was delayed from the initially targeted April/May. ' MIDF Research, July 26
This article appeared in The Edge Financial Daily, July 27, 2011.
Company Name: KNM GROUP BHD
| Research House: MIDF | Price Call: BUY | Target Price: 3.20 |
KNM Group Bhd
(July 26, RM1.90)
Maintain buy at RM1.75 with target price RM3.20: KNM Group announced yesterday that it and Zecon Bhd have entered into heads of agreement (HoAs) with Gulf Asian Petroleum Sdn Bhd (GAP) to undertake the engineering, procurement, construction and commissioning (EPCC) works for: (i) a petroleum refinery and a polypropylene plant (with a capacity of 150,000 to 200,000 barrels crude oil per day and 400,000 to 525,000 tonnes per year of polypropylene) worth RM15 billion; and (ii) a petroleum product storage terminal facility comprising four terminals (with total storage capacity of 2.328 million cu m) and supporting infrastructure and auxiliaries worth RM2 billion.
The refinery and polypropylene plant and the storage facility are GAP's plan for its integrated petroleum complex (IPC) located at Teluk Ramunia, Johor. The refinery and polypropylene plant is expected to be completed in 40 months and the storage facility in 18. KNM's management indicated that the Johor government has approved a 263ha parcel of land in Teluk Ramunia for the project, and GAP is in discussion with the state government for its equity participation.
We are wary of the viability and execution risks of this IPC development given GAP's unknown track record plus huge investment costs. Given the sizeable project value of RM17 billion and the fact that Asia Petroleum Hub, which is involved in a multibillion-dollar oil terminal in Johor has been placed under receivership recently, we are especially concerned over the funding. GAP might be too ambitious to build another refinery and petrochemicals integrated development (RAPID)-like project, which in contrast is backed by a financially strong Petroleum Nasional Bhd. We are also sceptical that the contract terms and project financials can be finalised and fulfilled within three months. Note that the RAPID project is still at the detailed feasibility study stage and the final decision will only be known end-2011 or early-2012.
Given that the HoAs are basically non-binding, we are taking a more conservative stance of keeping our earnings forecast unchanged at the moment until any letters of award are secured by KNM and pending further details from the management.
We maintain 'buy' with unchanged target price of RM3.20 based on unchanged 14 times FY12 price-earnings ratio, which is within its historical band. KNM's total outstanding order book remains healthy at about RM5.5 billion as at May 2011. Re-rating catalysts include the potential recognition of a RM2.2 billion contract awarded by Peterborough Renewable Energy Ltd starting July 2011, which was delayed from the initially targeted April/May. ' MIDF Research, July 26
This article appeared in The Edge Financial Daily, July 27, 2011.
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