Kelington Group Bhd’s (Kellington) 9MFY23 results beat expectations on margin expansion stemming from account finalisation of a turnkey job and accelerated billings from high-margin ultra-high purity gas system projects.
In its Results Note today (Nov 24), Kenanga maintains its OUTPERFORM call and raises its FY23-24F net profit forecasts by 45% and 53%, respectively, to reflect stronger project deliveries and margin expansion on improved revenue mix.
Consequently, it lifts its TP by 53% to RM3.28, from RM2.15, based on an unchanged 21x FY24F PER, with no adjustment to its TP based
on 3-star ESG rating.
“Our valuation represents a c.10% discount to peer’s forward mean PER of 24x which includes global players such as Air Products, Air Liquide and Linde.
“We like Kellington it being a direct proxy to the front-end wafer fab expansion, its strong earnings visibility underpinned by robust order book and tender-book exceeding RM1 billion, and its strong footholds in multiple markets, such as Malaysia, Singapore and China.
The risks to Kenanga’s call include chip makers halting their expansion plans due to oversupply, worsening Sino-US chip war, and delays in LCO2 expansion.
It added the group’s 9MFY23 net profit of RM66.9m, up by 78% YoY already surpassed our full-year forecast by 7% and was only 1% away from the full-year consensus estimate.
“The variance against our forecast came largely from stronger-than-expected billings from its projects in China.”
The research house said the group has a strong momentum to continue into 4Q, as it has favourable revenue mix, which made it poised for another robust quarter ahead, aligning with its seasonal trend.
“As at 3QFY24, the group has secured RM858 million worth of new jobs and is on track to achieve our RM1 billion estimated replenishment
target.
“With China reopening gradually taking place coupled with the consensus that the semiconductor industry has largely bottomed, we believe
Kellington is well prepared for another upcycle.
“Whether it is a smooth or bumpy recovery for the semiconductor sector, the group still has RM1.5 billion outstanding orders to navigate any obstacles that may come along,” Kenanga added.
