KNM: Profit likely to match '08 record

The process equipment maker says demand has started to pick up as higher oil prices over the last three months have resulted in the revival of oil and gas exploration projects
KNM Group Bhd (7164), a process equipment maker, expects profit this year to be comparable to last year's record now that demand has started to pick up following a recent rally in crude oil prices.

Higher crude oil prices over the last three months have resulted in the revival of oil and gas exploration projects, group managing director Lee Swee Eng said, adding that the active areas now are the Middle East, Brazil and Australia.

"Based on the current price of oil of between US$60 and US$70 a barrel, conventional oil projects are very profitable. With that, we have started to see a pick-up in enquiries and demand," he told reporters after the company's annual general meeting in Putrajaya yesterday.

He, however, declined to disclose the size of the group's order book, saying only that it is not as big as the RM3.9 billion announced last quarter given that some projects had been deferred and a "very small number", cancelled.

KNM, which has global subsidiaries, claims to have a three per cent share of the world's process equipment market.The group continues to be on the lookout for new acquisitions to expand its product base and move up the value chain.

"Discussion (with other parties) is always ongoing," Lee said, adding however that funding would remain a key concern in this difficult market. The group would be interested in companies that do offshore, sub-sea and nuclear plant products, he said.

KNM's net profit, which has grown annually since 2004, surged 79 per cent to RM336.4 million last year after factoring in its latest big acquisition, Germany's Borsig GmbH.The group's effort to move up the value chain has paid off as the majority of its products command higher prices, resulting in better margins and lesser competition, he said.

KNM's stock, once the darling of foreign investors, suffered last year when the global recession sent foreign funds fleeing the market.Today, it is a penny stock, and foreign ownership of the company stands at less than 30 per cent compared with "the early 40s" per cent at the end of 2007, Lee said.

It nevertheless continues to draw strong interest from retailers and institutions, often being among the most actively traded stock on a daily basis this year.Lee attributes the interest to "strong fundamentals and liquidity".

The management owns 35 per cent of the company, and the rest are available for trading.The shares, which have gained 111 per cent this year, rose by 5 sen to 85.5 sen yesterday.The company, with cash balances of between RM400 million and RM500 million, has no plans for a capital repayment as any excess cash would be used to repay debt, Lee said.

On another matter, Lee said he recently bought more than 30 per cent of an Australian alternative energy company, Mission New Energy Ltd, as a personal long-term investment.