Contract wins seen to spur Kelington’s earnings

PETALING JAYA: Kelington Group Bhd is expected to charter growth even going into 2024, on the back of recent contract wins that elevated its order book, says Kenanga Research.

Despite the bearish market sentiment in technology-related stocks, the research house said the group recently was able to secure two new contracts amounting to RM262mil,

With these new contracts, Kelington’s year-to-date job wins increased to RM1.62bil which surpasses Kenanga Research’s expectations.

All in, the group’s outstanding order book has grown to RM2.22bil that will provide a very solid earnings visibility going into 2024.

“The first contract worth RM170mil was awarded by a world-renowned company involved in storage services for bulk liquid and gasses.

“It is recognised under Kelington’s process engineering segment as it is a turnkey design and build service of a bulk liquid terminal in Port Klang,” said the research house in a report yesterday.

The second contract worth RM90mil, entails the installation of ultra-high purity (UHP) gas delivery systems for a semiconductor plant in Beijing, China. This chip company specialises in integrated design and manufacturing of dynamic random access memory.

“This job will be categorised under the group’s UHP segment, commencing from November 2022 until September 2023. We also learnt that Kelington’s jobs in China are still progressing on schedule as planned without any major interruption from the ongoing lockdowns,” Kenanga Research noted.

The research house maintained an “outperform” call on the stock with a higher target price of RM1.75 from RM1.70 previously.

“We continue to like Kelington for its unique proxy in the front-end of the chip space, strong track record and venture into the industrial gas segment which has high barriers to entry and yields lucrative margins,” it added.

Kenanga Research has also raised Kelington’s earnings forecasts by 3% for financial year 2022 (FY22) and 8% for FY23 respectively, to factor in the higher-than-expected order replenishment.

However, the risks to its call include slower revenue recognition due to Covid-19 lockdowns in China, further cut in semiconductor capital expenditure and delay in the ramp up of liquid carbon dioxide.

For the second quarter ended June 30, 2022, Kelington’s revenue rose by about 147% y-o-y while net profits surged by 84%. In a filing with Bursa Malaysia, the group attributed the growth to higher project completion in Malaysia and Singapore.

In terms of segmental revenue, Kelington’s local operations was the largest contributor, taking up 47% of the group’s revenue at RM148mil.

“Kelington continues to benefit from the semiconductor shortage as manufacturers race to expand production capacity by establishing new facilities,” it said.

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