Thursday, December 13, 2012

The real reason why KNM cannot rally


Hot Stock: KNM falls on UK project uncertainty
Written by Chong Jin Hun of theedgemalaysia.com
Friday, 23 November 2012 15:28

KUALA LUMPUR (Nov 23) – Investors sold KNM Group Bhd securities on Friday, pushing shares and warrants of the process equipment manufacturer down by as much as 2% and 9% respectively.This follows updates that the firm has yet to finalise financial arrangement for its proposed RM2.2 billion waste- to-energy project in the UK.

At 2.43 pm today, KNM shares were traded at 48 sen with some four million shares done after falling as much as one sen to 47.5 sen earlier. Its warrants, the third most-actively traded entity, were transacted at 11
sen at 2.45pm with about 17 million units changing hands.The warrants had earlier declined as much as one sen to 10.5 sen.

Analysts said earnings from KNM’s core business and the successful implementation of the UK project will influence market perception on the firm. “We believe KNM’s outlook moving forward is a mixture of positives and negatives,” RHB Research Institute Sdn Bhd analyst Mohd Faisal wrote in a note on Friday.

The note was issued following an analyst briefing by KNM a day earlier. Mohd Faisal said while there may be limited downside to the price of KNM shares following better earnings from its core business, there is
also a possibility that upside to the stock’s price will be curbed as investors assess the likelihood of the Peterborough project taking off in the future.

For now, Mohd Faisal who is maintaining RHB’s earnings forecast and “market perform” call for KNM, has however reduced the stock’s target price from 63 sen to 55 sen. These recommendations come against uncertainties about the implementation of KNM’s waste- to-energy project within the Peterborough enclave.

Nearly two years after announcing its proposed RM2.2 billion project , KNM had indicated in recent months that it was close to securing a financial close for the project, widely seen as a means to restore investor confidence in the firm. This is because the project, which constitutes 47% of KNM’s current orderbook of RM4.7 billion, will enable the company to generate recurrent income from the sale of electricity generated from the planned biomass and waste-recycling facility.

KNM had appointed EXIM Bank as the lead arranger for a GBP187 million (RM913 million) syndicated loan to fund the project, the financial closure of which, was expected to be finalised by last October.
But that had not happened. RHB’s Mohd Faisal said KNM officials had indicated during the company’s analyst briefing on Thursday that the financial close for the project has been postponed to the first quarter of 2013 (1QFY13)

According to Mohd Faisal, the delay is due to issues raised by one of the lenders on KNM’s power purchase agreement with Japanese conglomerate Marubeni Corp. ”We understand that KNM has taken steps to resolve the issues and the project’s financial close is expected by 1QFY13,” Mohd Faisal said. KNM announced in December 2010 that the company had signed an engineering, procurement, construction and commissioning (EPCC) contract agreement with Peterborough Renewable Energy Ltd (PREL) to develop an 80 megawatt recycling centre there.

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Remarks: Look like have to wait till 1Q2013 before good news hopefully arrive for KNM -)

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