KUALA LUMPUR (June 5): KNM Group Bhd shares were among the top traded today in late morning on Bursa Malaysia after Maybank IB Research started coverage on the stock with a Buy rating and target price of RM1 today.

At 11:35am, shares of the O&G services provider rose 4 sen or 5.2% to 79.5 sen with some 20.4 million shares traded.

A dealer told theedgemalaysia.com that the report by Maybank could have been the trigger for stock’s heavy trades this morning.

“Maybank’s report may have been the reason behind the stock’s heavy trades today,” he said.

He said that the balance sheet of the stock was looking better and added that the potential catalysts for the future that Maybank listed were strong reasons for trading the stock.

Maybank IB Research analysts Liaw Thong Jung and Ivan Yap said in a note today that two clear catalysts had emerged for the company.

On its first catalyst, the analysts said that the company stands to benefit from its direct proxy relationship to the Refinery and Petrochemical Integrated Development (RAPID) project in Johor.

“With seven major RAPID tenders worth RM60billion in the pipeline, we estimate KNM has an addressable bid size of RM12 billion-RM18 billion (over a 4-year period) for process equipment…. KNM’s potential new orders of RM3.0 billion-RM4.5 billion from a single project (RAPID) would improve its annual orderbook by 50%,” they said.

Secondly, the analysts expressed confidence in KNM’s ability to provide closure to its biomass project with Peterborough Renewable Energy Limited (PREL) in UK to develop a biomass and waste recycling centre, a project the company has clinched since 2010.

“Executing Peterborough is a strong catalyst. Our calculation suggests that KNM could consistently generate RM40 million-RM50 million in net profit per annum from FY17, based on a 10% internal rate of return and 80% equity stake, over a 25 year concession period. With its financial position now strengthened, the project is now a step closer to achieving financial closure.”

Meanwhile, MIDF Research reiterated its Neutral rating on the stock with a target price of 77 sen.

Analyst Aaron Tan of MIDF said: “We are reaffirming this call in this report, as we are not making any more changes to our earnings forecasts.

“The target price is based on an earnings per share of 4.8sen and price earnings ratio (PER) of 16 times. Our target PER of 16 times is based on KNM’s 10-year historical average PER and MIDF’s PER target for small-mid cap oil and gas service providers,” he said.

Tan added that he is positive on the Peterborough project and optimistic that KNM stands a good chance in clinching a slice of the pie from Pengerang.

Business & Markets

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