Thursday 29 February 2024

KELINGTON at a glance



investbullbear said...

Kelington posts record-high profit, shares near three-year high
By Hee En Qi /
28 Feb 2024, 08:11 pm

main news image
KUALA LUMPUR (Feb 28): Kelington Group Bhd posted a record-high profit for the fourth quarter ended Dec 31, 2023 (4QFY2023) as its gross profit margin rose to 18% from 12% a year ago due to shifts in revenue composition and favourable project mix.

Net profit surged by 96.5% to RM35.73 million from RM18.19 million in 4QFY2022, its bourse filing on Wednesday showed. Its quarterly revenue increased by 12.1% to RM478.26 million from RM426.72 million.

It declared a dividend of 2.5 sen per share for the quarter under review, taking the total dividends declared to four sen in FY2023, compared with 2.5 sen in FY2022.

Branded Image
Empowering talent from remote areas with equal employment opportunities
The competition for tech talent has existed since before the outbreak of the Covid-19 pandemic and with tech advancing rapidly, there is a widening gap between the ever-changing needs of industries and the academic curriculum of tertiary educational institutions. To bridge this gap, passionate industry players are taking bold steps by providing upskilling opportunities that ensure graduates are industry-ready.

On a segmental basis, Kelington's process engineering division experienced a significant increase of 142% in revenue to RM32.4 million due to a project awarded in 2022.

Revenue for its industrial gases division surged by 51% to RM30.9 million owing to consistent demand for liquid carbon dioxide from both local and export markets.

Its general contracting division also posted a significant increase in revenue of 30% to RM127.2 million due to the positive operating conditions in Singapore.

For the full year, the group’s net profit jumped by 84.1% to RM102.65 million from RM55.75 million, while revenue increased by 26.2% to RM1.61 billion from RM1.28 billion. Its gearing ratio was also reduced to 0.56 times from 1.01 times due to debt repayments in Malaysia and Singapore and the proactive utilisation of working capital.

Looking ahead, the group’s chief executive officer Raymond Gan said the group is well-positioned for continuous growth with several key developments.

He said the group had secured new contracts totalling RM1.1 billion in 2023, bringing the total order book to RM2.8 billion, of which RM1.3 billion remains outstanding. In addition, the group also bagged a major contract of RM143 million in January 2024 to perform the construction and commissioning of a gas hookup system in Shanghai, China.

“The industrial gas division's outlook remains positive as our second liquid carbon dioxide (LCO2) plant in Kerteh is scheduled to commence operation in the first quarter of 2024. This will more than double our production capacity and meet the increasing demand for LCO2 from export markets.

“Additionally, the commencement of our second on-site gas supply scheme in 2QFY2024, providing hydrogen, nitrogen, and oxygen to an optoelectronics semiconductor giant in Kulim, Kedah, will further strengthen the group's earnings visibility over the next 10 years,” he added in a statement.

At Wednesday’s market close, the counter was lower six sen or 2.43% at RM2.41, valuing the group at RM1.57 billion.

The group's shares have rallied since November last year, hitting a three-year high of RM2.47 on Tuesday (Feb 27). The counter has risen 23 sen or 10.6% since the start of 2024 and gained 90 sen or 59.6% over the past year.

investbullbear said...

RHB Investment Research Reports
Kelington Group - Expanding Horizons; Keep BUY

Publish date: Fri, 01 Mar 2024, 10:52 AM
Keep BUY and MYR3.03 TP, 19% upside and c.2% yield. We remain upbeat on Kelington Group’s earnings prospects post-results call with management. Key drivers are the fast-growing liquid CO2 (LCO2) business (commissioning of Phase 2), a potential upturn in the chip industry and sustainable margin expansion. At 21x FY24F EPS, the valuation of the stock appears fair (+0.5SD of its historical mean) with risk-reward being largely balanced.
Healthy orderbook. KGB’s outstanding orderbook (as at end-Dec 2023) stood at MYR1.3bn, predominantly comprised of ultra-high purity (UHP) projects (74%), followed by general contracting (20%) and process engineering (6%) jobs. We are optimistic that the group can uphold its high margin as UHP projects gain prominence. KGB secured c.MYR200m new contracts as at Feb-2024, including a MYR143m contract from China's largest semiconductor foundry. Management remains committed to prioritising higher-margin projects, backed by a MYR1.9bn tenderbook and anticipated semiconductor sector recovery, supported by Semiconductor Industry Association's 13.1% growth forecast for 2024.
Expanding its footprint. Management guided that KGB will extend its reach to Hong Kong and Germany. A subsidiary has been set up in Hong Kong, while in Germany, a subsidiary is expected in the next few months. The foray into new markets will provide significant opportunities for the group, especially with the latter expected to capture potential jobs from the European region. GPM in these markets are expected to be as high as those in Malaysia and Singapore (c.15% for the engineering segment). Currently, the group has c.MYR400m and MYR70m worth of tenders in Hong Kong and Germany. We view the expansion positively given KGB's strong track record with European fabs that have operations locally and in Singapore.
Fueling growth. The LCO2 segment has seen tremendous growth (4-year CAGR: 94.3%), underpinned by robust demand in Oceania markets. With an additional 70k tonne capacity from the second plant (to commence in mid- March), KGB will become the largest local LCO2 producer. Looking ahead, the group will explore new markets in Indonesia to expand its overseas presence, driven by growing demand (mainly from F&B clients). With double the margin of the industrial gases (IG) segment compared to the conventional business, expanding IG operations will further boost its margin.
Our forecasts remain unchanged as we incorporate better margin assumptions into our estimates. Our TP of MYR3.03 is pegged to an unchanged P/E of 21x on FY24F EPS with a 2% ESG premium baked in. The target P/E is at -0.5SD of KL Technology Index’s 5-year mean, which we believe is justifiable given the current dynamics within the technology sector. Downside risks: Weaker-than-expected earnings and orderbook replenishment.
Source: RHB Research - 1 Mar 2024