KKB: Profit plummeted

Results Update

For QE30/6/2015, KKB's net profit dropped by 75% q-o-q or 12% y-o-y to RM6.7 million on the back of a 61% q-o-q or 38% y-o-y decline in revenue to RM30 million. KKB's revenue & earnings dropped q-o-q mainly due to reduced revenue from the Group’s Steel Pipes manufacturing division due to the fulfillment of its major contract for the supply of Polyurethane Lined Mild Steel Pipes and Pipes Special.


Table 1: KKB's last 8 quarterly results


Chart 1: KKB's 32 quarterly results

Valuation

KKB (closed at RM1.74 yesterday) is trading at a trailing PE of 10 times (based on last 4 quarters' EPS of 17 sen). At this multiple, KKB is fully valued. However, if it cannot secure more contracts, then its earnings may revert back to the level we saw in previous years. For example, KKB's preceding 4-quarter EPS was only 8.3 sen. Based this EPS, KKB's PER would be 21 times!! For a small-cap stock, that's very expensive.

Technical Outlook

KKBhas rebounded off the long-term "uptrend line" at RM1.20 in January (see Chart 2). However, its rally was checked by the intermediate downtrend line at RM2.00 (see Chart 3). With poorer financial results ahead, KKB is likely to draft lower- testing the support levels at RM1.30-1.40.


Chart 2: KKB's monthly chart as at Aug 6, 2015 (Source: ShareInvestor.com)


Chart 3: KKB's weekly chart as at Aug 6, 2015 (Source: ShareInvestor.com)
 
Conclusion

Based on poor financial performance, demanding valuation & mildly negative technical outlook, KKB deserves a rating of SELL.

Note:
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, KKB