Upgrade TP to RM2.30 (35% upside). KGB registered record high quarterly earnings in 3QFY20 with CNP of RM8.1m (+25% YoY), after adjusting for impairment and FX losses. 9MFY20 CNP of RM10.8m (-36% YoY) came above expectations, exceeding our/consensus full-year forecast by 38%/50%. Order-book piled to an all-time high of RM370m (+31% YoY) with more UHP jobs from SMIC. We raise our FY20E/21E CNP by 71%/20% to better reflect the group’s prospects as our previous estimates were overly conservative. Reiterate OUTPERFORM with a higher Target Price of RM2.30.

Above expectation. Kelington Group Bhd (KGB) registered a record high earnings with 3QFY20 CNP of RM8.1m (+25.2% YoY), after adjusting for impairment and unrealised forex losses worth RM3.2m. 9MFY20 CNP of RM10.8m (-36% YoY) came above expectations, exceeding our and consensus full-year forecast by 38% and 50%, respectively.

Results’ highlight. QoQ, 3QFY20 CNP of RM8.1m increased sharply (vs. RM0.6m in 2QFY20) as its operations in Malaysia, Taiwan and China are fully back online. As such, revenue soared 27% QoQ to RM98m. YoY, 3QFY20 CNP jumped 25% to RM8.1m (post-adjustment for impairment and unrealised forex losses) while revenue inched 1.3% higher on improved contribution from general contracting and industrial gasses segments. The group’s liquid CO2 plant has not just recovered to pre-Covid-19 utilisation rate of 50% but is currently nearing 60%.

Strong order replenishment. After delivering RM98m (+1.3% YoY) in 3QFY20, the group still managed to replenish its orderbook to an all-time high of RM370m (+31% YoY; +14% QoQ) as of 30 Sep, with China pouring in more orders. SMIC is requesting KGB to speed things up at its Shanghai plant and hinted of more UHP-related job awards due to an imminent wafer shortage. SMIC recently reported a 123% YoY jump in profit to mark a new high as its utilisation rate hits 100% and is guiding strong momentum going into 1H 2021.

Tendering activities are fully lined up with WD Penang (announced RM2.3b investment), Micron SG (resuming memory spending), along with Lam Research, Bosch, and B Braun looking to expand capacity. Note that KGB has worked with WD and Micron SG in all their past expansions, positioning the group well for upcoming tenders.

Icing on the cake. The group has been working with pharma companies since 2-3 months back to understand the requirements of using dry ice to store Covid-19 vaccines. Apart from supplying their own dry ice, other dry ice manufacturers in Malaysia also have to source liquid CO2 from KGB, as there are only two players locally due to the high barrier of entry.

Raise FY20E/FY21E CNP by 71%/20% to RM13.5m/RM31.1m as our previous forecasts were overly conservative.

Maintain OUTPERFORM with higher TP of RM2.30 (previously RM1.92) based on unchanged FY21E PER of 23.6x (+0.5SD to 3-year mean).

Risks to our call include: (i) slower revenue recognition due to Covid-19, (ii) downturn in semiconductor sales, and (iii) delay in liquid CO2 ramp-up.