KNM ... All Just Seems So Good !!!

It has proposed to acquire ABL Group, which owns a combined 72% stake in Impress Ethanol and 49% stake in Impress Farming, for US$24 million (RM89.04 million). The acquisition will enable KNM to participate in the Thai renewable energy sector which required constructing and operating a bio-ethanol plant. This will provide recurring income for KNM in the long term.

Net gearing is only 0.27 times and this is expected to improve further after the completion of KNM’s one-for-five rights issue in April 2015. To note, the proposed rights issue will be fully underwritten by its major shareholders and investment banks, which provides room for expansion.

This venture is viewed positively as this will help the company transform from project-based earnings to more recurring income.
Together with the UK Peterborough biomass project, expect to see significant contribution of income from the recurring renewable energy division in the future.

The proposed construction of a bio-ethanol plant is in line with Thailand’s alternative energy devel-opment plan (AEDP 2012-2021) to target 25% of renewable energy in total energy consumption by 2021 with nine million litres per day of ethanol from about 2.6 million litres per day in 2013.

The main feedstock for bio-ethanol is sugarcane and cassava. There are currently 21 bio-ethanol plants in Thailand with a capacity of 4.8 million litres per day.

The declining global oil price should not markedly affect its business given its focus on the down-stream. With the Petroliam Nasional Bhd RAPID project proceeding, expect to see continuous contract news flow. KNM has a good chance to secure subcontractor jobs from some refinery packages in the near term.

Its management reassured that the EnergyPark Peterborough project remains on track with some ground and minor construction works started. It expects to commence contribution in financial year 2017 (FY17).

Its catalysts include the announcement of more Rapid contract wins, financial closing of EnergyPark Peterborough and stronger quarterly earnings due to lower finance cost.

The risks are fluctuations in oil prices, project execution ability and delay in the award of contracts.