KL Trader Investment Research Articles
KNM - Streamlining costs and ops
- Disposed loss-making overseas ops, set to make MYR22.5m one-off gain and save MYR20m in opex p.a.
- Targets to transform into a renewable energy player, a more stable business model.
- Maintain BUY and MYR1.00 TP (0.6x EV/order backlog) with upside bias.
What’s New
KNM has entered into a Sales & Purchase Agreement (SPA) to sell KNM Pty Ltd (KPL), its Australia-Indonesia based process equipment operations to Northfield Global Limited for AUD2 (original investment: AUD9.1m or MYR25.1m). Under the SPA, Northfield will take over all of KPL’s liabilities (AUD18.73m or MYR53.5m). KNM will make a one-off gain of MYR22.5m.
KPL holds (i) W.E. Smith Engineering Pty Ltd, (ii) HEA Australia and (iii) PT Heat Exchangers, which design thermal and mechanical sections, and manufactures air-cooled, shells and tube/plate heat exchangers, vessels, columns and feed water heaters.
What’s Our View
We are positive on this sale as KNM continues to streamline its global operations. The disposal of this Australia-based operations will save KNM about MYR20m p.a. in opex. This unit has been lossmaking, constrained by capacity under-utilisation and high opex.
Meanwhile, KNM is positioning itself to be an emerging renewable energy player. We gather that it is looking at such opportunities in Malaysia and SEA and is believed to be close to securing a closure on its Peterborough renewable energy project in UK. A successful transformation of its business model (from cyclical to more secured, recurring earnings base income) would likely see a rerating of the stock. We maintain our earnings forecasts for now.
Source: Maybank Research - 9 Feb 2015
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Disposed loss-making overseas ops, set to make MYR22.5m one-off gain and save MYR20m in opex p.a.
Targets to transform into a renewable energy player, a more stable business model.
Maintain BUY and MYR1.00 TP (0.6x EV/order backlog) with upside bias.
KNM has entered into a Sales & Purchase Agreement (SPA) to sell KNM Pty Ltd (KPL), its Australia-Indonesia based process equipment operations to Northfield Global Limited for AUD2 (original investment: AUD9.1m or MYR25.1m). Under the SPA, Northfield will take over all of KPL’s liabilities (AUD18.73m or MYR53.5m). KNM will make a one-off gain of MYR22.5m.
I need help to figure out how an original investment of AUD9.1m disposed at AUD2 can result in a MYR22.5m one-off gain. Is it because the liabilities are taken off, or what? And that also considered as gain?
I also need help on this valuation metric by Maybank Investment bank of
TP = 0.6xEV/order backlog
to give a TP of MYR1.00 for KNM. Very interesting metric to get whatever value you want. Why not use other valuation metrics to get a value of RM2.00, RM10.00?
I also need help to understand "Targeting to transform into a renewable energy player", just targeting, looking for opportunities, without any solid history to prove the management can add value to shareholder, can have so much upside for this shining star.
All I know when KNM was 43.5 sen during 2013 Christmas, investment banks gave a TP of KNM to RM1.10-1.50, the share price did rally up to RM1.10 on 4th August 2014, before falling sharply back to about 40 sen in mid December last year.
So what do you think, are there more retail investors making money from 43.5 sen up to RM1.10 from the major shareholders and the institutional investors, or more losing when the share price fell from RM1.10 to 40 sen?
2015-02-09 21:49