KNM ... July 09

KNM EXPECTS FY2009 EARNINGS TO BE COMPARABLE TO LAST YEAR

Oil and gas (O&G) services provider KNM GROUP expects its earnings for 2009 to be 'comparable to last year (2008)', underpinned by the recovery in oil prices and as the Group engages in higher value added products and services.

Group MD - LEE SWEE ENG said Jun 24, 2009 that KNM was also pushing ahead with its three-pronged business model, which entailed moving up the value chain, seeking new markets and exploring new industries in the O&G sector.

" .... We are moving up the value chain, with the high-end products in our line-up at 55%, due to less competition in that category which in turn reduces the stress on margins ...." said LEE after the shareholders' meeting.

FYE DEC 2008 RESULTS
For FYE Dec 2008, the Company registered Net Profit of RM336.2m - up from RM186.4m in 2007. Crude oil fell to a low of USD32 (RM112.96) in Dec 2008, off the peak of USD147 in Jun 2008.

MOVING UP THE VALUE CHAIN
LEE said the Group planned to move up the value chain via joint ventures, strategic alliances or mergers and acquisitions, depending on the size of the candidates. " .... There will be some pressure on margins in view of the market situation. But with 55% of our products on the high end, the impact on our margin may not be so severe compared to three or four years ago where we produced more low- and medium-end products ...." he said.

DEMAND PICK-UP
LEE also said that " .... the group is seeing a pickup in demand due to current oil prices hovering near the USD70 per barrel mark ....". KNM is seeing demand picking up in three areas, namely Australia, Brazil and the Middle East, with a higher demand for liquefied natural gas (LNG) in Australia, deepwater oil exploration in Brazil and O&G in the Middle East.

GROUP TENDERED FOR RM18 BIL WORTH OF WORK
The Group had tendered for RM18 bil worth of work and expected the conversion to be sizeable. " .... Most of the bids that we put in one year ago were recycled back from when the price of oil fell to USD32 per barrel. Over the past three months, since the oil price has been going up, customers are returning to restart discussions ...." LEE said.

MAR 2009 CASH POSITION
The Group had RM525m in cash as of Mar 31, a portion of which KNM used to pay off the first instalment of a loan from MALAYAN BANKING to acquire German engineering group BORSIG. However, its loans and borrowings were RM684.2M. " .... Our gearing ratio is at around 0.5 times, so we are financially very healthy ...." he said.

CONSOLIDATING OPERATIONS WITH BORSIG
LEE said KNM began consolidating operations with BORSIG and plans were under way to duplicate some BORSIG products which were not manufactured here. " .... We are also looking at realising the synergy between our plants in Malaysia and Brazil, where there is a big demand, which we are now prioritising to move our high-end products ...." he said.

ON SHAREHOLDINGS
When asked by reporters on why the Company's shares were still actively traded despite the sharp fall in share prices from 2008, LEE replied that " .... We had a lot of retail investors and fund managers back then when we were the darling of the industry. Our shareholding numbers increased from about 10,000 to about 40,000 .... We have strong fundamentals and no issues. Our share prices were beaten by the market because of exit of foreign funds, affecting the Company's share price ...." he added. KNM's current foreign shareholding numbers stand at almost 30%, down from over 40% at its peak. KNM has strong interest from both retail and institutional shareholdings which are interested in its liquidity, LEE said.