PETALING JAYA: Investors may want to monitor the movement of KNM Group Bhd shares this week after they fell below the crisis level of RM1.28 and psychological level of RM1 last Friday.
The oil and gas counter ended at 97 sen last Friday, which was the lowest since March 2006, with 20.86 million shares changing hands.
OSK Research in a recent technical analysis said the next strong support level could be seen at 85 sen.
“The RM1.28 low in 2009 is a crucial level for KNM. First of all, it was the bottom for KNM’s share price during the global financial crisis.
“Second, the price was again supported by the RM1.28 level in September 2010, which provided the base to eventually propel it to the RM3.28 level. When the bottom for a major previous bear market is violated, this implies significant weakness,” it added.
KNM shares took a beating last week after the company announced a net loss of RM116.29 million in the third quarter ended Sept 30 versus a net profit of RM56.09 million in the previous corresponding quarter.
The worse earnings were due to a one-off provision for foreseeable losses of about RM90 million and over RM50 million in credit impairments. Revenue for the quarter rose 6% to RM445.18 million from RM418.36 million.
For the nine-month period ended Sept 30, KNM recorded a net loss of RM86.42 million from a net profit of RM110.57 million a year ago. Revenue increased by 19% to RM1.4 billion from RM1.17 billion.
KNM had announced a dividend policy to distribute at least 50% of its net profit, with effect from financial year ending Dec 31, 2012.
Based on its segmental analysis, KNM derived most revenue and profits from Europe over the nine-month period. In fact, only operations in Europe were profitable while the company incurred losses in Asia and the Americas.
KNM was recently put under the spotlight after Bursa Malaysia slapped eight of its directors with fines of RM25,000 each for breaching the Main Market listing requirements in relation to a proposed takeover exercise made on Feb 4, 2010.
On that date, KNM had received a takeover offer from BlueFire Capital Group Ltd, an entity controlled by KNM managing director and major shareholder Lee Swee Eng, and two foreign partners GS Capital Partners VI Fund LP and Mettiz Capital Ltd.
The offer was for KNM’s entire business and undertakings for RM3.5 billion or 90 sen per share. But the company failed to disclose certain material conditions in the offer, including the issuance of redeemable convertible preference shares (RCPS) to satisfy the takeover.
Most recently, KNM tied up with Lukoil Uzbekistan for a US$72 million (RM230 million) contract to construct a booster compressor station on the Khauzak-Shady plot.
However, even this latest contract failed to excite analysts.
HwangDBS Research said the contract is still at the early stages. While KNM’s outstanding order book remains at RM5.5 billion, the financial close for its Peterborough project (RM2.2 billion) and Octagon project (RM700 million) has not been secured yet.
Excluding these contracts, KNM’s order book of RM2.6 billion does not provide good earnings visibility, according to HwangDBS.
It downgraded KNM to fully valued and cut its target price to 70 sen, based on 10 times FY12 ending Dec 31 earnings per share.
This article appeared in The Edge Financial Daily, November 29, 2011.
The oil and gas counter ended at 97 sen last Friday, which was the lowest since March 2006, with 20.86 million shares changing hands.
OSK Research in a recent technical analysis said the next strong support level could be seen at 85 sen.
“The RM1.28 low in 2009 is a crucial level for KNM. First of all, it was the bottom for KNM’s share price during the global financial crisis.
“Second, the price was again supported by the RM1.28 level in September 2010, which provided the base to eventually propel it to the RM3.28 level. When the bottom for a major previous bear market is violated, this implies significant weakness,” it added.
KNM shares took a beating last week after the company announced a net loss of RM116.29 million in the third quarter ended Sept 30 versus a net profit of RM56.09 million in the previous corresponding quarter.
The worse earnings were due to a one-off provision for foreseeable losses of about RM90 million and over RM50 million in credit impairments. Revenue for the quarter rose 6% to RM445.18 million from RM418.36 million.
For the nine-month period ended Sept 30, KNM recorded a net loss of RM86.42 million from a net profit of RM110.57 million a year ago. Revenue increased by 19% to RM1.4 billion from RM1.17 billion.
KNM had announced a dividend policy to distribute at least 50% of its net profit, with effect from financial year ending Dec 31, 2012.
Based on its segmental analysis, KNM derived most revenue and profits from Europe over the nine-month period. In fact, only operations in Europe were profitable while the company incurred losses in Asia and the Americas.
KNM was recently put under the spotlight after Bursa Malaysia slapped eight of its directors with fines of RM25,000 each for breaching the Main Market listing requirements in relation to a proposed takeover exercise made on Feb 4, 2010.
On that date, KNM had received a takeover offer from BlueFire Capital Group Ltd, an entity controlled by KNM managing director and major shareholder Lee Swee Eng, and two foreign partners GS Capital Partners VI Fund LP and Mettiz Capital Ltd.
The offer was for KNM’s entire business and undertakings for RM3.5 billion or 90 sen per share. But the company failed to disclose certain material conditions in the offer, including the issuance of redeemable convertible preference shares (RCPS) to satisfy the takeover.
Most recently, KNM tied up with Lukoil Uzbekistan for a US$72 million (RM230 million) contract to construct a booster compressor station on the Khauzak-Shady plot.
However, even this latest contract failed to excite analysts.
HwangDBS Research said the contract is still at the early stages. While KNM’s outstanding order book remains at RM5.5 billion, the financial close for its Peterborough project (RM2.2 billion) and Octagon project (RM700 million) has not been secured yet.
Excluding these contracts, KNM’s order book of RM2.6 billion does not provide good earnings visibility, according to HwangDBS.
It downgraded KNM to fully valued and cut its target price to 70 sen, based on 10 times FY12 ending Dec 31 earnings per share.
This article appeared in The Edge Financial Daily, November 29, 2011.
