Kelington (KGB) announced that it has been awarded 3 contracts worth a total value of RM101m. We view this announcement positively as these wins put KGB closer to surpassing last year’s overall contracts secured. Besides, it also supports our investment thesis that the robust semiconductor industry, particularly in China, will continue to benefit KGB. We maintain our BUY call and target price at RM1.60.

2 Singapore and 1 China UHP Contracts Secured

KGB secured one contract from China and two contracts from Singapore, with a total value of RM101m. The two jobs in Singapore relate to the installation and commissioning of exhaust systems, which are targeted to be completed within a 2-year period (October-18 to November-20) and 1-year period (September-18 to August-19) respectively. Meanwhile in China, KGB secured a 6-month contract from Zhonghuan Advanced Semiconductor Materials Co to supply, install and commission equipment for the latter’s chemical delivery system.

Likely to Surpass 2017 Total Contract Wins of RM374m

Inclusive of these contracts, the ytd contract wins amount to RM360m, lifting the outstanding order book to RM376m (from RM252m). UHP works continue to comprise the biggest portion of the order book at 60%, followed by Process Engineering and General Contracting at 27% and 13% respectively. We make no changes to our earnings forecasts as this falls within our replenishment target of RM400m for FY19.

Reiterate BUY and RM1.60 Target Price

We maintain our BUY call on KGB and 12-month target price of RM1.60, based on a 16x PER on FY19E EPS. We like the company for a few reasons: i) the semiconductor industry is still poised for continued growth, ii) its huge China presence and benefits from the ‘’Made in China 2025’’ masterplan, iii) a compelling long-term growth story as it expands into the industrial gas market, iv) solid balance sheet with net cash, and v) management’s network and strong technical background from its MOX days.

Downside risks to our BUY call: i) downturn in semiconductor sales, and (ii) delay start-up in LCO₂ plant.

Source: Affin Hwang Research - 10 Oct 2018