KKB- rising on good results, Bonus Issue & Share Split

Results Update

For FYE31/3/2010, KKB's net profit increased by 59% q-o-q or 209% y-o-y to RM19.0 million while turnover increased by 9% q-o-q or 123% y-o-y to RM68 million (see Table 1 below). From Table 2, we can see that the improved performance was attributable to 223%-increase in turnover which resulted in a 290%-increase in the results of both the manufacturing & engineering divisions.


Table 1: KKB's last 8 quarterly results


Table 2: KKB's Segmental Results analysis


Chart 1: KKB's 11 quarterly results

Corporate Exercise

KKB will be implementing a 3-for-5 Bonus Issue plus 1-to-2 Share Split on May 24. A shareholder who has 5000 shares would end up with 16000 shares after this exercise.

Other Comments

In April 2008, Cahaya Mata Sarawak Bhd ('CMS') became a substantial shareholder of KKB when it acquired 20.05%-stake in KKB from the Chairman/Group MD, Dato Kho Kak Beng. With this tie-up, we can expect a steady flow of contract from CMS to KKB as Sarawak embarked on its ambitious program of industrial development.

Valuation

KKB (trading at RM6.40 as at 12.00 noon) has a trailing PER of 10.5 times [the last 4 quarters' EPS of 61 sen]. At this multiple, KKB is deemed inexpensive.

Technical Outlook

KKB has risen from a low of RM1.50 in early 2009 to a recent high of RM6.53. From Chart 2, we can see that KKB is approaching the all-time high of about RM7.30 recorded in 1996. Can it revisit that high? KKB may be forming an expanding triangle (or, some may see a broadening top), with resistance at RM7.00 (see Chart 3). So, it is possible that the developing rally today, which coincides with the announcement of the Bonus Issue plus Share Split yesterday, could potentially test the RM7.00 level (or, even beyond it).


Chart 2: KKB's weekly chart as at May 10, 2010 (Source: Tradesignum)


Chart 3: KKB's daily chart as at May 12, 2010_11.30am (Source: Tradesignum)

Conclusion

We have to weigh the strong financial performance & attractive valuation with the sharp rally in the share price. On balance, I would rate it good for a SELL ON STRENGTH as it approaches the RM7.00 level. However, its connection to CMS may ensure that the company would continue to do well and one may want to accumulate this stock on price weakness.