Affin Hwang: KGB’s prospects bright

KUALA LUMPUR: Kelington Group Bhd (KGB) is poised to be the second-largest industrial gas supplier following its venture into the business of supplying industrial gases as part of its long-term growth, says Affin Hwang Capital.

“Once the first plant is up and running by September next year, the group will effectively be the second-largest liquid carbon dioxide (LCO2) player in town. This should help provide longterm recurring income to KGB (about five to 10 per cent of revenue),” said Affin Hwang in its first coverage report on the company yesterday.

The firm initiated a “buy” call on KGB with the target price of RM1.60, based on next year’s forecast of price-to-earnings ratio of 16 times.

“We believe KGB’s prospects are bright as the usage of industrial gases continues to expand rapidly into various industries.

“Our 2019 and 2020 estimated core net profits are set to post a three-year compounded annual growth rate of 13 and 22 per cent respectively, driven by prospective growth in China and Singapore ultra-high purity (UHP) contract flows.”

Affin Hwang also expects the progressive ramp-up at KGB’s LCO2 plant and future expansion projects to be key earnings rerating catalysts in the coming years, which would also help to lift the overall group margin.