Analysts positive on Kelington’s plan to expand LCO2 plant
KUCHING: Kelington Group Bhd’s (Kelington) plan to expand its liquid carbon dioxide (LCO2) plant garnered positive view from analysts.
“We are highly positive on Kelington’s plan to expand its recurring income stream by building LCO2 plant in Kerteh, Terengganu, with a capex of RM45 million
“The new investment will enable KGB to meet greater LCO2 demand as customers are knocking on its doors for additional supply given the group’s proven record in delivery and product quality.
“The new plant is targeted for commissioning by December 2023 with its maiden contribution expected to kick in by FY24 (which is beyond our forecast period),” said the research team at Kenanga Investment Bank Bhd (Kenanga Research).
To note, Kelington has announced its plan to build a second LCO2 plant in Kerteh, Terengganu with a capex of RM45 million. The reason for the expansion is to capture more demand as its existing LCO2 plant 1 has been running at circa 90 per cent utilisation, above its target of 80 per cent for 2022.
“In fact, LCO2 plant 1 has been exceeding the group’s target utilisation rate since its commissioning in 2019 and growing resiliently despite the pandemic.
“The investment will raise its net debt and net gearing of RM47 million and 0.22-fold as at end2QFY22 to RM80 million and 0.35fold, respectively, which are still highly manageable,” Kenanga Research explained.
“We learnt that customers are knocking on its doors for more LCO2 supply as the group has been able to deliver consistently without disruptions (unlike its peers).
“While the group only made its foray into this business three years ago, it has already demonstrated its competency and gained the trust of customers to be the second reliable source for LCO2.
“The customers are mainly multinational corporations in the food and beverage industry,” it said.
The new plant is expected to start construction in December 2022, and to be completed in December 2023. Any meaningful contribution will only come in by FY24.
“We are highly positive on this expansion as the LCO2 business (circa seven per cent of group revenue) is of a recurring nature and yields lucrative margins of 30 per cent at the gross level (which is double that of its other existing business segments),” Kenanga Research said.