Kelington’s earnings forecast raised on contract win

KUALA LUMPUR: Kenanga Research is raising Kelington Group Bhd’s earnings forecast for 2023 by 5% after factoring in the company’s higher-than-expected orderbook due to its ultra-high purity (UHP) contract win, valued at about Rm330mil.

The research house noted that the contract was one of the group’s largest non-turnkey awards, which typically yields better margins.

The group’s orderbook has swelled to Rm1.87bil, which should provide solid earnings visibility for this year and next, it said.

“We observed that although the size of UHP contracts awarded is growing, the manpower requirements do not increase linearly,” it said in a note.

Kenanga Research added that this was attributable to the group’s effort in fabricating its proprietary gas equipment two years ago, which started to garner customers’ favour, hence contributing to higher contract value with a similar workforce size.

Kenanga Research has maintained its “outperform” call on the stock, with a higher target price of RM1.70.

Kelington’s wholly-owned unit, Kelington Technologies Sdn Bhd, has secured a UHP contract worth about Rm330mil from a global semiconductor solutions company to undertake the bulk and specialty gas system distribution works for the customer’s expansion of its manufacturing facility in Kulim.

Similarly, Malacca Securities Sdn Bhd said the contract is expected to generate mid-tohigh single-digit earnings before interest, taxes, depreciation and amortisation margins, which is in line with the historical average for UHP work.

“Consequently, we have raised our orderbook replenishment to Rm1.5bil for this year, while keeping next year’s target unchanged at Rm1bil,” it said.

In its second quarter (2Q22), Kelington’s revenue grew by 147% year-on-year (y-o-y) to Rm312.4mil, attributed to higher project completion in Malaysia and Singapore.

In terms of geographical breakdown, Malaysia was the largest contributor, representing 47% of the group’s revenue.

According to its filing, revenue from Malaysia soared 293% y-o-y to Rm148mil in the quarter, due to the contribution of a major general contracting job awarded in 3Q21.

Revenue from Singapore increased by 177% to Rm104.7mil from Rm37.8mil in the previous corresponding quarter.

The strong growth was mainly driven by higher revenue contributions from UHP projects awarded during 2H21.

Singapore was the second largest contributor, with 34% of total revenue.

Due to higher recognition from on-going projects, China contributed Rm51.6mil in revenue in 2Q22, representing a 11% increase y-o-y, while revenue from Taiwan doubled to Rm6.6mil from Rm3.3mil in the previous corresponding quarter.

In line with higher revenue performance in 2Q22, Kelington’s net profit almost doubled to Rm13.6mil, compared with Rm7.35mil in 2Q21. — Agencies