KNM Group: Sell, fair value RM0.42

AMRESEARCH Sdn Bhd has maintained its "sell" call on KNM Group Bhd (7164) and said that a re-rating of the stock at this point is still premature.

Its fair value of the stock at 42 sen per share remains unchanged, based on a financial year 2010 forecast (FY10F) price earnings ratio of 12 times.

"We retain our forecasts at this juncture, given that KNM's order book replenishment remains uncertain. But we highlight that our FY10F-FY12F earnings estimates are 22-36 per cent below street estimates," it said in a report yesterday.

The research house said the re-rating was premature due to depressed breakeven utilisation levels, likely continuation of margin pressure in second half of FY10F, clouded prospects of increasing its order book, and KNM's poor earnings deliverance over the past five quarters.

As the group's operating costs are likely to remain high, KNM's margin is likely to remain under pressure in 2HFY10 if there is no significant improvement in order for replenishment over the next two quarters.

The research house said it remains cautious over KNM's target of securing new orders of RM2 billion in FY10F.

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