Company Background. Kelington Group (KGB) is a leading provider of ultra-high purity gas and chemical delivery solutions for hightechnology industry. It is also a one-stop facility solution provider offering turnkey engineering services from initial system design to maintenance and servicing upon completion. The group operates within 4 core business segments: (i) ultra-high purity (UHP), (ii) process engineering, (iii) general contracting, and (iv) industrial gases. KGB's industrial gas operation primarily provides on-site gas supply and manufactures liquid carbon dioxide (LCO2).

Prospects. (i) As at 31 Dec 2023, KGB has secured new contracts totaling RM1.1bil, contributing to a total orderbook of RM2.8bil (1.7x FY23 revenue). It is well positioned for continued growth and expects a healthy orderbook replenishment rate across its core segments, (ii) Demand for LCO2 is rising with economic recovery, especially from Oceania countries. The group’s 2nd LCO2 plant in Kerteh (which would double production capacity) is set to start operations in 1QFY24, boosting the industrial gas division's performance, and (iii) The launch of the 2nd on-site gas supply scheme in 2QFY24 to provide various industrial gases to an optoelectronics semiconductor company in Kedah, positively supports earnings visibility for the next decade.

Financial Performance. In FY23, KGB reported a higher revenue of RM1.6bil (+26% YoY) with a PAT of RM105mil (+80% YoY). This was mainly driven by contributions from the UHP and process engineering segments, as well as consistent demand for LCO2 and other industrial gases from local & export markets.

Valuation. KGB is trading at an attractive FY25F P/E of 12.9x, which is lower than its 5-year forward average of 16.6x and Bursa Industrial Production Index’s 16.5x currently. As a comparison, U.S.-based Linde and Europe-based Air Liquide, both also involved in specialty/industrial gases and processing solutions, trades at a much higher FY25F P/E of 27.3x and 24.5x respectively.

Technical Analysis. KGB broke out from a 7-week bullish rectangle pattern 2 weeks ago, implying that its previous uptrend may have resumed. With the 20-day EMA remaining above 50-day EMA since a bullish crossover in late-Nov23, the upward momentum may persist in the near term. A bullish bias may emerge above the RM2.40 level with stop-loss set at RM2.23, below the 50-day EMA. Towards the upside, near-term resistance level is seen at RM2.80, followed by RM3.00.

Source: AmInvest Research - 11 Mar 2024