KKB: Manufacturing Strength Drives Positive Outlook, Target Price Increased

A recent investment bank research report highlights a nuanced financial performance, where robust contributions from the manufacturing division largely offset a weaker engineering segment. Despite a slight miss on overall 9M25 core net profit against initial projections, the resilient manufacturing arm and a promising tender book underpin a positive future outlook, leading TA SECURITIES to maintain its BUY recommendation with a revised target price of RM0.25.

Performance Review

For the nine months ended September 2025 (9M25), the company reported a core net profit of MYR7.8 million, marking a 51% year-on-year decline. This figure fell short of the investment bank’s initial estimates, accounting for only 40% of the full-year projection. The primary drag on performance was the engineering division, which recorded an after-tax loss of MYR7.4 million in 3Q25, a significant reversal from the MYR11 million profit in 3Q24. This downturn was attributed to two major projects (Sarawak Shell and Rosmari & Marjoram onshore gas plant) reaching their tail-end, alongside a general slowdown in contract rollouts from major oil companies.

Conversely, the manufacturing division demonstrated exceptional strength, posting a profit after tax of MYR9.1 million in 3Q25, a substantial improvement from a MYR0.5 million net loss in 3Q24. This stellar performance was fueled by the supply of mild steel concrete-lined pipes for water treatment plants in Sibu and a regional water supply project in Serian, showcasing the division’s operational efficiency and strong project execution.

Order Book and Future Outlook

As of end-3Q25, the company’s outstanding order book stood at approximately MYR85 million, a decrease from MYR127 million at the end of 2Q25. However, its tender book for engineering, construction, and manufacturing projects saw a significant expansion, growing to an estimated MYR703.5 million from MYR231 million in 2Q25. Furthermore, the group is actively tendering for an additional MYR1.2 billion worth of oil and gas-related jobs, with an anticipated success rate of 30-40%, with awards expected from 4Q25 onwards into 2026 and beyond.

Despite the mixed 9M25 results, TA SECURITIES has adjusted its FY25-27F earnings estimates downwards by 14%, 11%, and 3% respectively, reflecting a more conservative outlook for job wins in FY25. Nevertheless, the firm maintains a positive long-term view, underpinned by its strong tender pipeline and the manufacturing division’s resilience. The new target price of RM0.25 represents a 25.0% upside from the last traded price of RM0.20.

Investment Rationale and Risks

The BUY rating is justified by the company’s robust position to benefit from increased federal allocation for Sarawak under Budget 2026 and potential faster-than-expected wins from the oil & gas fabrication sector. Additionally, upcoming water supply schemes in Sabah could present further job opportunities. Key downside risks include a slower-than-anticipated trend in job replenishment.