Kelington Group Berhad's Q3 2025 quarterly results

Analysis and summary of Kelington Group Berhad's (KGB) latest quarterly results for Q3 2025.

Executive Summary

KGB delivered a strong quarter of profitable growth in Q3 2025. While 9-month revenue is down year-on-year, the company has successfully improved its profitability through a strategic shift towards higher-margin projects, better cost control, and reduced foreign exchange losses. The balance sheet has strengthened significantly, with a sharp increase in net cash and a lower gearing ratio. With a robust order book of RM1.64 billion and a successful entry into the European market, the outlook remains highly positive.

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1. Financial Performance Overview (Q3 2025 vs. Q3 2024)

Key Takeaway: The quarter demonstrates effective margin expansion. KGB is earning more profit from a slightly higher revenue base, indicating improved operational efficiency and a more favourable project mix.

2. Year-to-Date (9M 2025) Performance

Key Takeaway: The divergence between declining revenue and rising profits is striking. It confirms management's strategy of being selective in bidding for higher-margin projects, which is paying off handsomely.

3. Segmental & Geographical Breakdown

Business Segments (Q3 2025):

• Engineering (88% of Revenue): The core driver.

  • Advanced Engineering (65%): Revenue dipped slightly (-6%) but remains the cornerstone. Strong growth in Singapore (+34%) offset declines in China as projects there neared completion.

  • General Contracting (17%): Showed explosive growth (+77%) from new projects in Malaysia.

  • Process Engineering (8%): Grew 35% due to a major project in Malaysia.

• Industrial Gases (11% of Revenue): Revenue declined by 17%, mainly due to lower demand for certain specialty gases, though liquid carbon dioxide (LCO₂) sales remained stable.

Geographical Revenue (9M 2025):

• Malaysia (35%): Revenue down 22% due to a timing gap between project completions and new starts.

• Singapore (34%): Revenue up 22%, becoming a key growth engine.

• China (25%): Revenue down 23% as projects moved to the handover stage.

• Taiwan (2%) & Others (4%)

4. Strengthened Financial Position

KGB's balance sheet is in its strongest position in recent history.

Key Drivers of Strengthened Balance Sheet:

1. Warrant Exercises: Raised ~RM71 million, boosting equity.

2. Strong Profit Generation: Retained earnings increased.

3. Healthy Cash Flow from Operations: Generated RM59.2 million in 9M 2025.

5. Order Book & Future Prospects

• Robust Order Book: RM1.64 billion as of 30 September 2025, providing strong revenue visibility.

• New Contract Wins: Secured RM1.14 billion in new jobs during the first nine months of 2025.

• Strategic Expansion:

  • European Entry: Landed first project in Dresden, Germany, a strategic milestone.

  • ESG Focus: Actively building capabilities in carbon capture (CCUS), green hydrogen, and bio-CNG through MOUs with industry partners.

• Positive Industry Tailwinds: Management is optimistic, citing global semiconductor equipment spending projections (USD125 billion in 2026) and Malaysia's National Semiconductor Strategy (NSS), which has attracted over RM71 billion in investments.

6. Dividends

KGB continues its shareholder-friendly policy, declaring three dividends for FY2025:

1. First Interim: 2.5 sen (paid July 2025).

2. Second Interim: 2.5 sen (paid October 2025).

3. Third & Special Interim: 2.5 sen + 1.5 sen (to be paid January 2026).

This demonstrates confidence in the company's ongoing cash flow generation.

Conclusion

KGB's Q3 2025 results paint a picture of a company in excellent health. It has masterfully navigated a temporary revenue dip by focusing on profitability, resulting in record earnings and a fortress-like balance sheet. The company is well-positioned to capitalize on the global semiconductor boom and its own strategic initiatives in Europe and sustainable engineering. The strong order book and net cash position provide a solid foundation for future growth.

KPJ: Surge in the P/E and P/B multiples (2023-2024)

Summary:  Surge in the P/E and P/B multiples (2023-2024) coincides

with KPJ achieving its highest ever PBT Margins and ROE.  

KPJ Healthcare: 10-Year Financial Summary (Adjusted for Latest Capital Structure)

All monetary values in RM '000, except per-share data. 

Per-share data is adjusted for NOSH of 4,363,857.

This adjusted dataset allows for a proper analysis of KPJ's valuation 

metrics (like P/E and P/B ratios) over the entire 10-year period, as 

if the company's current share capital had always been in place.

Calculated Financial Ratios for KPJ Healthcare

Key Observations:

Profitability (PBT & Net Margin): There is a clear trend of 

significantly improving profitability from the low in 2020, with 

margins in 2023-2024 reaching their highest point in the last decade.

Return on Equity (ROE): The ROE has followed a similar trajectory

to the profit margins, showing strong improvement in recent years. 

The exceptionally high ROE in 2015 (38.14%) is an outlier and is 

directly caused by the very low Adjusted NTA (RM 0.0923) in that

 year, which significantly inflates the ratio. This low NTA is consistent

 with the major capital change that occurred.
Dividend Payout (DPO): The DPO ratio has become more stable 

and higher in recent years (around 51-55%), indicating a commitment

to returning more cash to shareholders as profits have grown. The 

very low DPO in 2015 (11.65%) is consistent with the capital 

restructuring event that likely occurred around that time.

KPJ Healthcare: Valuation & Profitability Metrics (Adjusted)

Key Observations:

Valuation (P/E Ratio): 

- The P/E ratio was extremely high in 2020 (83.76) 

because earnings (EPS) fell sharply during that period, while the share 

price did not drop as precipitously.

- The current P/E (33.74 for 2024) is at the high end of the historical range, 

reflecting market expectations for continued strong earnings growth.
- The period from 2021 to 2023 shows a fascinating trend: as earnings (EPS)

recovered and grew strongly, the share price initially lagged (leading to 

a low P/E of 17.58 in 2022) before surging ahead (resulting in a higher 

P/E of 33.74 in 2024).

Valuation (P/B Ratio):

- The P/B ratio has consistently been above 2.0 for most of the last decade, 

indicating the market values KPJ at a significant premium to its book value.
- The current P/B of 4.71 is the highest in the last 10 years (excluding

the  2015 outlier), signaling very strong market confidence in the 

company's future profitability and asset utilization.

- The 2015 P/B of 11.27 is an outlier, directly caused by the abnormally

low Adjusted NTA (RM 0.0923) following the capital restructuring, which

artificially inflated the ratio.

Profitability vs. Valuation:

- The recent surge in the P/E and P/B multiples (2023-2024) coincides 

with KPJ achieving its highest-ever PBT Margins and ROE, justifying 

the market's higher valuation to a large extent.

Is NVIDIA a buy, a hold or a sell at today's price?

Summary: NVIDIA's phenomenal business prospects are fully appreciated by the market. Future returns will be driven by the hard work of earnings growth rather than multiple expansion. For a long-term investor, it remains a foundational holding for exposure to AI, but new capital might find better risk-reward opportunities on market dips.

Based on a synthesis of the financial data, competitive position, and market dynamics, here is an assessment and forward-looking return expectations for NVIDIA.

Arguments for HOLD

Reasons Against a Strong BUY:

1. Priced for Perfection: At a P/E of ~53x trailing earnings, the stock embeds extremely high expectations. Any stumble in execution, a slower-than-expected adoption curve for AI, or a significant margin contraction would likely trigger a sharp correction. There is very little room for error.

2. Law of Large Numbers: Growing revenue at >100% from a base of $130 billion is mathematically improbable. The current valuation requires sustained hyper-growth for several more years. As the company matures, growth will decelerate, and the multiple will likely contract simultaneously (a phenomenon known as "multiple compression").

3. Intensifying Competitive Threats: The bear case is not trivial. Competitors like AMD are gaining traction, and the largest customers (Microsoft, Google, Meta, Amazon) are all developing their own custom AI chips to reduce dependency. This could erode NVIDIA's pricing power and market share over the long term.

4. Cyclicality Risk: Semiconductors are inherently cyclical. While the AI boom may extend the cycle, a global economic slowdown or a reduction in enterprise AI spending could lead to a painful inventory correction.

Reasons Against a SELL:

1. Unparalleled Dominance and Moat: The combination of its hardware, the critical CUDA software ecosystem, and its full-stack platform creates a defensive moat that is arguably the strongest in the tech sector. This is not a company that will be displaced easily or quickly.

2. Massive Total Addressable Market (TAM): The AI revolution is in its early innings. Applications in enterprise software, robotics, automotive, and biology represent a TAM of over $1 trillion. NVIDIA is the primary infrastructure provider for this shift.

3. Proven Execution and Financial Fortress: The management team has executed flawlessly. The company has a pristine balance sheet with massive cash flow, allowing it to invest aggressively in R&D and return capital to shareholders, insulating it from short-term shocks.

Conclusion for HOLD: For new investors, waiting for a more attractive entry point (a market pullback or a period of consolidation) would be prudent. For existing investors, selling a company with such a strong competitive position and growth runway is likely a mistake. The optimal strategy is to hold and let the company's earnings growth eventually justify the valuation.

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5-Year Total Return and Annualized Return Expectations

Predicting returns for a stock like NVIDIA is speculative, but we can build a realistic model based on fundamental drivers: Earnings Growth and Multiple Change.

Let's use the following Base Case scenario:

• Starting Point (FY2025):

  • EPS = $3.39

  • P/E Ratio = 52.8x

• 5-Year Assumptions:

  1. EPS Growth: Growth will decelerate but remain very strong.

     • Years 1-2: ~30% annual growth (down from ~150%).

     • Years 3-5: Growth decelerates to ~20% annually.

     • This results in a 5-year EPS CAGR of approximately 22%.

  2. P/E Multiple Contraction: As growth normalizes, the market will assign a lower multiple. A P/E of 30-35x is more typical for a high-quality, mature growth company.

     • We assume the P/E contracts to 32x by Year 5.

Base Case Calculation:

1. FY2030 EPS: $3.39 * (1.22)^5 = $3.39 * ~2.70 ≈ $9.15

2. FY2030 Share Price: $9.15 (EPS) * 32 (P/E) = $292.80

3. Total Return: (($292.80 / $178.88) - 1) * 100 = +63.7%

4. Annualized Return (CAGR): (1.637)^(1/5) - 1 = ~10.4% per year

Scenario Analysis:

Final Conclusion

• Going Forward: Investors should expect volatility. The path to these returns will not be smooth.

• Realistic Expectation: The Base Case annualized return of ~10% is a realistic expectation from today's price. This would be a strong absolute return, roughly doubling the historical market average, but it is a far cry from the 80%+ annualized returns of the recent past. The era of easy, explosive gains is likely over.

• Primary Risk: The biggest risk is the Bear Case scenario, where growth decelerates rapidly and the P/E multiple contracts sharply, leading to a flat or negative return over five years.

Summary: NVIDIA is a "Hold" because its phenomenal business prospects are fully appreciated by the market. Future returns will be driven by the hard work of earnings growth rather than multiple expansion. For a long-term investor, it remains a foundational holding for exposure to AI, but new capital might find better risk-reward opportunities on market dips.

Recommendation: HOLD

This is not a strong "BUY" at current levels, but it is absolutely not a "SELL." The recommendation is nuanced and highly dependent on an investor's existing position, risk tolerance, and time horizon.

This is not a recommendation.  Please do your own research and decide accordingly.

Additional Notes:

Benjamin Graham:

Purchase of "GROWTH STOCKS" at GENEROUS PRICES is speculation..

(Should set aside a sum for this separate from their money in investing.

Investment and speculation  (Security Analysis, Ben Graham.):

1. Graham defined investment thus: An INVESTMENT OPERATION is one which, upon THOROUGH ANALYSIS, promises SAFETY OF PRINCIPAL and a SATISFACTORY RETURN. Operations NOT meeting these requirements are speculative.

The difference between investment and speculation, when the two are thus opposed, is understood in a general way by nearly everyone; but it can be difficult to formulate it precisely. In fact something can be said for the cynic's definition that an investment is a successful speculation and a speculation is an unsuccessful investment.

The failure properly to distinguish between investment and speculation was in large measure responsible for the market excesses and calamities that ensued, as well as, for much continuing confusion in the ideas and policies of would-be investors.

2. Graham's addition criterion of investment: An investment operation is one that can be justified on BOTH QUALITATIVE and QUANTITATIVE grounds.

Investment must always consider the PRICE as well as the QUALITY of the security.