KKB to be beneficiary of Sarawak water supply projects

PETALING JAYA: KKB Engineering Bhd is poised to be a beneficiary of the rollout of water supply projects in Sarawak.

Recently, Sarawak Premier Tan Sri Abang Johari Tun Openg said Sarawak required an expenditure of RM1.1bil to upgrade the state’s entire water pipeline system, which would span roughly 2,740km.

RHB Research said it is upbeat on this development, as the Sarawak-based steel fabrication company had previously been involved in water supply-related projects in Sarawak.

KKB Engineering was a clear beneficiary of water supply projects in Sarawak via the Sarawak Water Supply Grid Programme (SWGP) launched in 2018 – which entailed the need for laying and replacing pipelines.

“The group secured at least RM200mil worth of projects under SWGP between 2019 and 2020.

“Aside from the latter, KKB Engineering has also been involved in water supply-related works from other bodies such as Laku Management (July 2021) and diversion works at Sungai Maong Paroh from the Kuching Water Board or KWB (March 2022),” the research house said in a report.

RHB Research said RM247mil (out of the RM1.1bil budget) will be allocated to replace ageing and damaged pipes around Kuching, Samarahan and other parts of Sarawak. The project is scheduled to start this year.

“Additionally, the group’s steel pipe manufacturing arm (4% of the financial year 2023 or FY23 group revenue) may benefit from this, as it previously received purchase orders from other SWGP contractors,” the research house said.

Water-related construction projects (which fall under KKB’s civil construction unit) made up 43% (FY22: 64%) of the company’s engineering and construction division in FY23. The remainder came from its steel fabrication and hot dip galvanising business.

“Trend-wise, revenue from civil construction was about 22% year-on-year (y-o-y) lower in FY23. This was partly due to higher billings from the Pan Borneo Highway initiative, combined with a number of water-related projects for Sarawak Rural Water Supply Department or JBALB, Laku Management and KWB, which were already reaching their tail-ends in FY22,” RHB Research said.

It has maintained a “buy” call on KKB Engineering with a target price of RM2.02, pegged to a price-to-earnings (PE) multiple of 17 times based on the forward PE of FY24. It added that the target PE was near the Bursa Malaysia Energy Index’s five-year mean to reflect robust oil and gas spending that may bode well for fabricators.