Its unit, KNM Process System Sdn Bhd and its bidding partner SINOPEC Engineering Co Ltd have received a LOA worth USD1.33 billion from Petronas.
The contract is one package relating to Petronas’ RAPID project.
It is believed that KNM’s effective portion is circa USD280 million. Works are likely to start in early 2015, over 2 years. This is positive development for KNM.
KNM also has exposure to other packages such as CITC, Technicas, Reunidaf, Petrof and Toyo which had won the other four RAPID related packages.
In total, observers expect KNM to secure about USD800 million to USD1 billion worth of jobs from RAPID alone over the next three years from 2014. Expect subsequent contract flows on RAPID works over the next few months from Aug 2014 in favour of KNM.
Industry observers also expect higher backlog orders over the two years from 2014.
Sources say its foreign partner have put in aggressive bids for the process equipment jobs at RAPID project worth in excess of US$1bil (RM3.21bil). It is learnt that KNM’s share in the joint venture is 33% and that the foreign partner was also a company with technical expertise in the oil and gas field.
Any possible wins would boost investors’ confidence towards the local process equipment manufacturer as it works towards gaining investors interest in the company.
Estimated that for every RM100mil in revenue from Rapid-related works would contribute RM10mil per annum to its earnings assuming that its pre-tax margin is 10%.
Should KNM secure a consistent RM600mil to RM1bil worth of Rapid-related contracts annually from 2015 to 2018, it would contribute RM45mil to RM75mil to its net profit.
The company made net profits of RM23.84mil in FY13 and RM72.28mil in FY12.
Estimated that KNM could bid for jobs related to process equipment from the Rapid project that ranged from RM10bil to RM18bil over four to five years from 2014.
The outlook for the company had improved tremendously on the back of the refinancing of its debts, disposal of its loss making Brazilian arm and the go-ahead given to the Rapid project.
KNM’s restructuring of its borrowings helped it to save RM13mil in interest cost per year.
Going forward, KNM’s Peterborough project in the United Kingdom is viewed as another positive catalyst that would provide recurring income for the company. The execution of the waste-to-energy project in three years’ time could add RM40mil to RM50mil in net profit per annum from FY17 based on an internal rate of return of 10% and 80% equity stake.
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