• Kelington Group Bhd (KGB) has evolved to become a multi-disciplinary engineering services provider, specialising in ultra high purity (UHP) and industrial gas services with regional presence in countries across South East Asia and China.
• Record high orderbook of RM364.0m as of 1QFY21 to anchor earnings growth over the next 2 years. Leveraging on semi-conductor upcycle with the newly setup equipment fabrication plant at China in 2020.
• We initiate coverage on KGB with a BUY call and fair value of RM2.55, based on 28.0x P/E pegged to its forward FY22f EPS of 9.1 sen.

Investment Highlights

• Ultra High Purity (UHP) specialist. We like KGB for its position as a UHP specialist, backed by multi-national clients such as Semiconductor Manufacturing International Corp (SMIC), Taiwan Semiconductor Manufacturing Co (TSMC), Infineon, Seagate, and Micron. Well positioned to leverage on the semiconductor industry super cycle following the recent expansion through the newly setup fabrication plant in China.

• Industrial gas expansion to generate long-term income stream. We are sanguine on the expansion of liquid carbon dioxide (LCO2) plant with a capacity of 50,000 tonnes pa that will generate long term income visibility. Utilisation rate may ramp up amid the improved demand as economic activities gather pace since 2H20.

• Record high orderbook to underpin earnings growth. After booking record high RM490.0m of orderbook replenishment in FY20, we have penciled an orderbook replenishment of RM450.0m each for FY21f and FY22f, supported by the uprising semi-conductor business cycle and higher demand for industrial gas. Moving forward, KGB’s outstanding orderbook of RM364.0m in 1QFY21 will sustain earnings visibility over the next 2 years.

Source: Mplus Research - 27 May 2021