KNM's Thai energy venture to bear fruit by July

KNM's Thai energy venture to bear fruit by July

KNM Group Bhd, whose share price hit an all-time low of 27 sen last week,
said it will finally see the first contribution from its renewal energy
foray into Thailand by July.

Having projected 5% of its top line to come from the first phase of the Thai
operation by end-2017, group chief executive officer Lee Swee Eng said the
group is on track to diversify into renewable energy as a core business by
end-2019, when Phase 2 kicks in.

"We have commissioned Phase 1 of the Thai ethanol plant, capable of
producing 200,000 barrels per day (bpd). And now, our permit application to
sell the product in Thailand is currently in the audit stage. By July, we
should be able to start selling [the ethanol products there]," Lee told
reporters after KNM's annual general meeting yesterday.

Lee said the shift in business activity is in line with its strategy to move
from short-term, contract-based jobs to long-term recurring income. The
company saw fewer new work orders and projects completed in the first
quarter of its financial year ending Dec 31, 2017.

While KNM's tender book stood at near RM10 billion as at June 2016,
shareholders should expect a thinning order book from the RM5.2 billion it
had at that same time last year. KNM, said Lee, will see 60% of its workload
to consist of its own projects by 2019, from mostly client-based jobs at
present.

Including the Thailand ethanol business, KNM's internal renewable energy
projects in the period will include the first phase of its waste-to-energy
project in Peterborough, UK, and another one in the US.

Both, Lee said, are expected to kick-start at end-2018, pending the approval
of financing from its partners there.

"It's a two-prong strategy - renewable energy and recurring income - so the
[fewer] orders reflect our shift towards internal projects, such as in
Thailand and the UK. There is also [fewer] work orders in the oil and gas
(O&G), and petrochemical industries.

"We have not shown the profit [from renewable energy venture] that they
(shareholders) have been looking for. It takes time to shift from one sector
to another. With the display of our Thai operations, today's shareholders
are more understanding," he added.

The Thai ethanol project, said Lee, will contribute up to 15% to group
revenue by FY18. "On May 11, we started work on Phase 2. That will allow us
to produce an additional 300,000 bpd," said Lee, adding that the second
phase - to be commissioned in two years - will account for 30% of the
group's revenue when it goes into operation.

On KNM's increased gearing, Lee said it is again reflective of the group's
expansion into internal projects to build up its recurring income portfolio.
"We are still very comfortable with anything below one," he said, adding
that the bond yield of 3% is "relatively low".

KNM issued RM333.9 million worth of bonds last year to fund the second phase
development of the Thai plant, shifting the group's gearing to 0.6 times,
above the target of 0.5 times set by Lee earlier.

The group, which slipped into the red in FY16 - the first time since FY11 -
does not expect to incur the same results this year. "The [RM330 million]
losses in the fourth quarter last year is a one-time thing.

"We had an unexpected logistic cost incurred in central Asia due to
rerouting - that is resolved.

"And we had to rework our products from the Kuantan operation because of
bauxite contamination. Ultimately, we shut down the Kuantan plant and also
incurred some impairment losses from that decision," added Lee.

Additionally, Lee said KNM is waiting for the right time to re-initiate its
Canada oil sands operation which it scaled down last year, meaning a
turnaround in that operation - previously anticipated to be this year - will
be delayed.

"We are just keeping the overhead costs low. When the oil price recovers to
a profitable level, we will initiate it. For now, we cannot predict the O&G
industry's outlook," he said.

Year to date, shares of KNM have lost 17.65% in value. The counter closed at
28 sen yesterday, giving a market capitalisation of RM597.18 million.

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Link to Original Article:
http://www.theedgemarkets.com/article/knms-thai-energy-venture-bear-fruit-ju
ly

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John Diecker
APT Consulting Group Co., Ltd.

www.aptthailand.com