KKB- a good long-term investment

Background

KKB Engineering Bhd ('KKB') is involved in steel fabrication and the manufacturing of liquefied petroleum gas cylinders, steel pipes and hot dip galvanising and civil construction.

Recent Financial results

KKB's 2Q2009 results is satisfactory. Its net profit increased by 26.3% q-o-q or 245% y-o-y to RM7.8 million, while turnover increased by 16.8% q-o-q or 15.4% y-o-y to RM35 million. The company attributed its improved performance to healthy contribution from its steel water pipes manufacturing operation.


Table: KKB's last 8 quarterly results


Chart 1: KKB's 8 quarterly results

Financial Position

KKB's financial position as at 30/6/2009 is very healthy with Current ratio at 3.7 times while Gearing ratio is low at 0.13 times.

Valuation

KKB (closed at RM2.10 yesterday) is now trading at a trailing PE of 8.4 times (based on last 4 quarters' EPS of 25 sen). However, if KKB can maintain its past 2 quarters' performance for the next 2 quarters, its EPS for FY2009 could be about 34 sen- giving the stock a current PE of 6.2 times. At this multiple, KKB is deemed fairly attractive.

Technical Outlook

KKB's share price is converging due to the present of a supportive uptrend and a restrictive downtrend. I do not believe the stock will test its uptrend line support at RM1.50 soon due to the bullish sentiment in the market. Its more immediate support will come from its 50- & 100-SMA of about RM1.75-80. A test of the downtrend line resistance at RM2.25 is likely. A break above that resistance could be the start of the next up-leg for this stock. However, KKB is a very quiet stock, which makes buying & selling of large position fairly difficult.


Chart 2: KKB's weekly chart as at August 5, 2009 (Source: Quickchart)

Conclusion

Based on good financial performance & position, KKB could be a good stock for long-term investment. If the stock can break above the RM2.25 level, it could be a trading BUY.

PS- KKB has also announced that the Government of the State of Sarawak has on 4 August 2009 issued a Letter of Acceptance to the Company for “The Construction and Completion of Proposed Samalaju Water Supply, Bintulu Division, Sarawak (“Project”) for a contract sum of Ringgit Malaysia One Hundred And Ninety Six Million (RM196 million) (for more, go here).