KKB: Strong Earnings Maintained

Result Update

For QE30/6/2019, KKB's net profit rose 76% q-o-q or 215% y-o-y to RM5.6 million while revenue rose 2% q-o-q or 29% y-o-y to RM120 million. The Group's revenue rose y-o-y due mainly to the increased revenue from the Group’s Engineering Sector, in particular, its Civil Construction and Steel Fabrication divisions. Concurrently, the Group’s pre-tax profit rose 219% y-o-y on the back of higher revenue and improved profit margin recognized from the Engineering sector.

Apart from the on-going major Steel Fabrication jobs i.e the D18 Phase 2 Project for the Provision of Engineering, Procurement, Construction, Installation and Commissioning of Wellhead Platforms for Petronas Carigali Sdn Bhd and the Provision of Procurement & Construction of Wellhead Deck, Piles and Conductors for the Pegaga Development Project, the commencement of the two new pipe laying projects secured in February 2019 from Jabatan Bekalan Air Luar Bandar Sarawak (Package SR1 & Package 1C) implemented under the Sarawak Water Supply Grid Program has started to contribute positively to the Group’s revenue and earnings.


Table: KKB's last 8 quarterly result


Graph: KKB's last 48 quarterly result

Financial Position

KKB's financial position as at 30/6/2019 is deemed satisfactory, with current ratio and gearing ratio stood at 2 times and 0.6 times respectively.

Valuation

KKB (closed at RM1.43 yesterday) is now trading at a trailing PER of 16x (based on last 4 quarters' EPS of 9.02 sen). At this PER, Dufu is deemed fair.

Technical Outlook

KKB has broken above its long downtrend in February 2019 at RM1.00.


Chart: KKB's monthly chart as at Aug 15, 2019 (Source: Malaysiastock.biz)

Conclusion

Based on improved financial performance, satisfactory financial position and fair valuation, KKB is still a good stock for long-term investment.

Note:

I hereby confirm that I do not have any direct interest in the security or securities mentioned in this post. However, I could have an indirect interest in the security or securities mentioned as some of my clients may have an interest in the acquisition or disposal of the aforementioned security or securities. As investor, you should fully research any security before making an investment decision.

APB: Earnings soared on forex gain!

 One of the gainers this morning is APB. It is up 18 sen to RM1.48 as at 11.00am.

The reason for this sharp rise could well be the "good results" announced (see the diagram below). There is no doubt that APB did well in the last quarter as well as the full financial year. However a cursory glance will reveal two concerns:

• Full-year revenue dropped by 21%. Why?
• While full-year PBT jumped by RM8.7 million, half the amount was recorded in QE30/9/2015. Why the sharp rise in QE30/9/2015?

Diagram 1: Results announcement from Kentrade

I have extracted & tabulated the results for the past 10 quarters from ShareInvestor.com. I added in the latest results for QE30/9/2015, as this has not yet been updated by ShareInvestor.com. We can see that, APB's net profit rose 159% q-o-q or 182% y-o-y to RM9.1 million while its revenue rose 14% q-o-q or 40% y-o-y to RM42 million in QE30/9/2015.

From a reading of the Notes to the latest results, we know the reason for the jump in profits. It is due to forex gain of RM8.0 million. As this is unlikely to recur, we should exclude the amount from the accounts. If we do that, we can see that APB's profits are pretty ordinary.


Table: APB's last 11 quarterly results

 
Chart 1: APB's last 11 quarterly results

Next, we address the question of the drop in revenue. If the company could benefit from favorable forex movement, then surely the revenue would have benefited from the same movement. How would you explain the drop in revenue? If you studied the Notes to the accounts for QE30/6/2014, you will see this comment on the drop in revenue for that quarter.


Diagram 2: Notes to the Account for QE30/6/2014

With that, we can come to a conclusion regarding APB's financial performance: APB's revenue & profit did improve in the past 5 quarters (since QE30/6/2014). However, the improvement is not spectacular. If the forex gain of RM8.0 million is excluded from the results for QE30/9/2015, the adjusted net profit for FY2015 would be RM10 million. That's a drop from RM12 million for FY2014.

With that, I believe that APB's recent price run-up should prompt you to TAKE PROFIT on the stock. This is especially so if you look at the chart below where you would see a horizontal resistance just ahead at RM1.60.


Chart 2: APB's monthly chart as at Nov 27, 2015_10.30am (Source: ShareInvestor)

Conclusion

The second message of this post is that you need to study the accounts of the stock that you wish to invest in. There is no substitute for simple analysis to back up your conviction to invest in a stock. Investing requires commitment and that can only come from conviction in a stock after we have done our homework. 

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, APB.