HLG: KNM Group - RM463m in new jobs (7 August 2008)

KNM Group BUY

Price target RM2.40



Share price at 06 Aug RM1.77

Investment summary
KNM announced that its subsidiaries have secured RM463m new jobs since Jun08 for various projects in Malaysia and overseas. The new orders will boost its existing order book by 10% to RM4.7bn. We remain bullish on KNM: (1) share price valuation trades at 9x FY09E, 20% discount to global peers (2) cross selling of new products from Borsig and Ellimetal could surprise on the upside.



We are positive on the oil and gas services sector: (1) high crude oil price will continue to fuel higher capex spending. Petronas’s capex in FY08 is up 66% to USD5.7bn (2) orders for process equipment is unlikely to reverse unless oil price falls below USD60/bbl (3) multi year of underinvestment in refinery and offshore assets has created a super normal pricing power for process equipment manufacturers.

Buy on weakness

New RM463m orders reinforce our belief that global demand for process equipments remains strong. We think the tight credit market will impact EPS negatively by 2-3%. In view of the poor market conditions, we think investors can get lower entry price into the stock and advocate investors to accumulate on weakness