KUALA LUMPUR: KKB Engineering Bhd is well-positioned to be a beneficiary of the rollout of water supply projects in Sarawak.
Sarawak Premier Tan Sri Abang Johari Tun Openg had recently said that Sarawak requires an expenditure of RM1.1 billion to upgrade the state's entire water pipeline system, which would span roughly 2,740 kilometre.
RHB Research is upbeat about this development, as KKB had previously been involved in water supply-related projects in Sarawak.
"KKB was a clear beneficiary of water supply projects in Sarawak via the Sarawak Water Supply Grid Programme (SWGP), launched in 2018, which entailed the need for laying and replacing pipelines.
"The group secured at least RM200 million worth of projects under SWGP between 2019 and 2020.
"Aside from the latter, KKB has also been involved in water supply-related projects with other bodies, such as the Northern Sarawak Water Board (LAKU) Management in July 2021 and diversion works at Sungai Maong Paroh from Kuching Water Board (KWB) in March 2022," it said in a research note.
RHB Research also indicated that out of the allocated RM1.1 billion budget, RM247 million will be earmarked for the replacement of aging and damaged pipes in Kuching, Samarahan, and other areas of Sarawak.
This initiative is scheduled to commence this year.
The investment bank said such developments are timely for KKB to potentially boost its civil construction arm, as the Pan Borneo Highway is slated for completion in April while the majority of its water-related projects have reached their tail-ends.
It also emphasised that KKB's steel pipe manufacturing division, which accounted for four per cent of the group's revenue in financial year 2023 (FY23), may potentially benefit from this allocation.
This is because the division has previously received purchase orders from other contractors involved in SWGP.
As such, RHB Research has maintained a "buy" call on KKB with a target price of RM2.02.
Moving forward, the investment bank said a major catalyst for the group includes its earlier-than-expected involvement in hydrogen projects through its subsidiary KKB Energy.
The subsidiary plans to undertake projects related to renewable energy, specifically focusing on the assembly of hydrogen electrolysers.
Meanwhile, it said a major key risk includes slower-than-expected job replenishment trends.