Robust order book. Notwithstanding the glooming outlook for chip demand, KGB’s 9M22 total secured orders were at a record high of RM1.6bn (vs RM1.19bn in FY21), with tender book at RM1.7bn. The secured orders have surpassed our assumption of RM1.4bn projected in our previous Stock Watch report, and will keep the group busy until FY24. While US has taken unprecedented steps to limit the sale of advanced computer chips to China, KGB said it has yet to see any signs of slowdown, with some new tenders for fab capacity expansion to be called in 1H23 by Micron, SMIC, Siltronics and others. On a conservative note, we maintain our RM900m order secured assumption for FY23 in light of the volatile sector outlook. All in, we project KGB’s core PATAMI to register a strong FY21-24f CAGR of 26%. We value KGB at RM1.82/share, ascribing a 21x PE to its FY23 earnings.

Second LCO2 pant in the making. After KGB’s first LCO2 plant commenced in 2019 and achieved 80% utilization rate in 1H22, KGB has committed to invest RM45m for setting up its second LCO2 plant (P2) in Kerteh, Terengganu. The new plant that is capable to produce beverage grade LCO2 has started its construction and is expected to be completed by Dec 2023, which will lift the group’s capacity to 120k tonnes (P1: 50k tonnes). Overall, we are sanguine about this development as the new plant would more than double the revenue from the industrial gases segment, which provides stable recurring income and commands a superior margin (industrial gas GPM: 30% vs UHP: 15%).

Pending a MACD golden cross. Technically, KGB is trading near its uptrend support levels of RM1.35-1.42, with indicators on the mend. A successful breakout above RM1.50 hurdle will spur the share price toward RM1.55-1.60-1.68, forming a higher high pattern. Cut lost at RM1.33.

Source: Hong Leong Investment Bank Research - 10 Jan 2023