Robust earnings visibility for KGB on strong order book

PETALING JAYA: Kelington Group Bhd (KGB) is expected to see good earnings visibility, going forward, underpinned by its robust order book and tender book.

Kenanga Research said the group’s strong outstanding order book of RM1.8bil will keep the group busy into its financial year ending Dec 31, 2024.

“Against the backdrop of a slowdown in the technology sector, KGB has exhibited resilience and exceptional capabilities in sustaining a steady flow of job wins,” the brokerage said in a report.

It pointed out that KGB has secured RM596mil worth of new jobs year-to-date, putting it on track to achieve its RM1bil replenishment target for the year, supported by an elevated tender book of RM2bil.

Kenanga Research, which maintained an “outperform” call on the stock, said it favoured KGB for the strong footholds in multiple markets including Malaysia, Singapore and China, apart from the robust earnings visibility.

Additionally, it said KGB is a direct proxy to the global expansion of front-end wafer fab.

For its first quarter ended March 31, 2023, KGB’s financial performance was within Kenanga Research and consensus estimates.

KGB reported a net profit of RM16.2mil or almost double from the last corresponding quarter, which accounted for 29% and 27% of Kenanga Research and consensus’ full-year estimates, respectively.

Revenue for the quarter under review jumped 78.2% year-on-year on the back of robust project deliveries across all operating markets.

Kenanga Research said Malaysia, which accounts for nearly half of the group’s revenue, saw an 82.9% growth, followed by substantial contributions from Singapore and China, which reported growth of 67.2% and 68.9%, respectively.

Delving into its business segments, KGB’s ultra-high purity gas delivery solutions remain as the group’s anchor business, contributing about 60% of group’s revenue.

Kenanga Research said the segment recorded a growth of 63.1%, owing to strong demand from the semiconductor industry.

“Furthermore, its industrial gases segment, differentiated by its higher gross profit margin of about 30% compared to other segments at about 15%, has more than doubled in revenue and now constitutes 8% of the group’s revenue.”

The growth was attributed to the surging demand in the food and beverage industry, which propelled the group’s liquid carbon dioxide plant to operate at near-peak capacity.

Kenanga Research made no changes to its earnings forecasts and consecutively maintained its target price of RM1.92 on the stock.

In a filing with Bursa Malaysia on its latest financial results, KGB said prospects for the industrial gases division remain positive, as demand for liquid carbon dioxide (LCO2) increases in tandem with the recovery in economic activities.

“The proposed investment of the second LCO2 plant at Kerteh will more than double the production capacity and will further enhance the industrial gas division’s financial performance starting from 2024.”

KGB said the commencement of its second onsite gas supply scheme in the fourth quarter of 2023 to supply hydrogen, nitrogen and oxygen for an optoelectronics semiconductor giant in Kulim, Kedah, will contribute positively to the group’s earnings visibility over the next 10 years.

“Barring unforeseen circumstances, we are confident of delivering a commendable financial performance in 2023, as we execute our existing order book across our key operating markets.”

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