Stock Name: KNM
Company Name: KNM GROUP BHD
KNM Group Bhd
(Aug 18, RM1.56)
Maintain buy at RM1.57 with revised target price of RM2.10 (from RM3.35): Given the slower-than-expected rollout of EnergyPark Peterborough, we understand the client has not secured financial close, we trim FY11 to FY13F gross profit margins by 1.2% to 1.9%. Consequently, FY11 to FY13F earnings were cut by 17% to 32%, also indicating a slower rollout. We had initially assumed 15% completion by FY11, but now push back commencement to FY12, which will see 23% earnings contribution. We remain confident the project will take off given that it is a renewable energy project, in line with the UK government's commitment to sourcing 15% of its energy from renewable sources by 2020.
We expect 2QFY11 earnings to be similar to 1QFY11, reflecting sluggish margins for old contracts secured in FY09 and 1H10. As highlighted in our previous reports, we expect earnings recovery to be more pronounced in 2HFY11, especially 4QFY11 with the completion of old contracts. KNM's tender book is still hovering at RM17 billion, indicating a still buoyant outlook.
Following the earnings downgrade, we cut our target price to RM2.10, pegged to 12 times FY12 earnings per share, in line with the sector average.
The recent selldown on an expectedly weak global economic outlook has provided an opportunity to accumulate KNM shares on weakness. KNM's share price has dropped to a two-year low despite its better prospects compared with the last two years. Earnings visibility remains supported by a RM5.5 billion order book as at July 2011 (against RM2.4 billion in July 2010), implying 3.5 times book-to-bill ratio. We remain bullish on KNM's long-term prospects. The full impact of normalised margins will be reflected in FY12. ' HwangDBS Vickers Research, Aug 18
This article appeared in The Edge Financial Daily, August 19, 2011.
Company Name: KNM GROUP BHD
| Research House: HWANGDBS | Price Call: BUY | Target Price: 2.10 |
KNM Group Bhd
(Aug 18, RM1.56)
Maintain buy at RM1.57 with revised target price of RM2.10 (from RM3.35): Given the slower-than-expected rollout of EnergyPark Peterborough, we understand the client has not secured financial close, we trim FY11 to FY13F gross profit margins by 1.2% to 1.9%. Consequently, FY11 to FY13F earnings were cut by 17% to 32%, also indicating a slower rollout. We had initially assumed 15% completion by FY11, but now push back commencement to FY12, which will see 23% earnings contribution. We remain confident the project will take off given that it is a renewable energy project, in line with the UK government's commitment to sourcing 15% of its energy from renewable sources by 2020.
We expect 2QFY11 earnings to be similar to 1QFY11, reflecting sluggish margins for old contracts secured in FY09 and 1H10. As highlighted in our previous reports, we expect earnings recovery to be more pronounced in 2HFY11, especially 4QFY11 with the completion of old contracts. KNM's tender book is still hovering at RM17 billion, indicating a still buoyant outlook.
Following the earnings downgrade, we cut our target price to RM2.10, pegged to 12 times FY12 earnings per share, in line with the sector average.
The recent selldown on an expectedly weak global economic outlook has provided an opportunity to accumulate KNM shares on weakness. KNM's share price has dropped to a two-year low despite its better prospects compared with the last two years. Earnings visibility remains supported by a RM5.5 billion order book as at July 2011 (against RM2.4 billion in July 2010), implying 3.5 times book-to-bill ratio. We remain bullish on KNM's long-term prospects. The full impact of normalised margins will be reflected in FY12. ' HwangDBS Vickers Research, Aug 18
This article appeared in The Edge Financial Daily, August 19, 2011.
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