2QFY21 CNP of RM7.4m (+1,080% YoY; 33% QoQ), brings 6MFY21 CNP to RM12.9m (+176%), came in within expectation, representing 41%/45% of our/street’s estimates. Revenue increased 21% QoQ despite the domestic FMCO as its China operation (+145%) offset the temporary slowdown in Malaysia and Singapore, leading to improved EBIT margin. A stronger 2H is on the cards with the easing of workforce restriction and a slew of UHP jobs in the pipeline. Its order- book stands at RM402m while tender-book has swelled to RM1.5b (+50%), on track to hit another record jobs win. Maintain OUTPERFORM and Target Price of RM1.50.

Within expectation. Kelington Group Bhd (KGB)’s 2QFY21 CNP of RM7.4m (+1,080% YoY; 33% QoQ) brings 6MFY21 CNP to RM12.9m (+176%), which came in within expectations, representing 41% and 45% of our and consensus full-year estimates, respectively. Having posted QoQ growth despite the FMCO restrictions, this provides early indication of robust orders in the pipeline which could only mean better earnings in the subsequent quarters as restrictions are being lifted.

Results’ highlight. QoQ, despite FMCO restrictions, CNP grew 33% to RM7.4m on a 21% jump in revenue to RM126.4m, thanks to overwhelming UHP jobs in China (+145%) which we believed is attributable to the aggressive wafer fab expansion in the country. This has offset the temporary slowdown in Malaysia (-14%) and Singapore (- 2.5%) operations. YoY, 2QFY21 CNP leaped 1,080% on a 63% increase in revenue as operations in Malaysia doubled while Singapore’s operation grew 79%. Cumulatively, 6MFY21 revenue rose 43% to RM231.2m while CNP more than doubled to RM12.9m as EBIT margin improved 3.3ppt to 7.8%.

Stronger 2H on the cards. With the government easing lockdown restrictions once again, we believe its operations in Malaysia will soon be able to resume back to 100% workforce as the group’s vaccination rate is approaching 90%. Over in Singapore, the group has recently won a UHP job award worth RM45m from GlobalFoundries which we believe is only the start of more to come given that many wafer fabs in Singapore have recently announced expansion plans in which KGB has a strong presence. China operations are also showing no sign of slowing as the country continues to boost the local tech space in order to be self-sufficient.

Tender-book surged 50%. After recognising six months of sales, the group’s outstanding order-book still remains elevated at RM402m, exceeding its FY20 revenue. The management remains very aggressive in acquiring new jobs propelling its tender-book to RM1.5b, a sharp increase of 50% from the RM1b usually reported by them. With this momentum, we believe the group is on track to achieve another record jobs win in FY21.

Maintain FY21E and FY22E earnings of RM31.1m and RM35.6m, representing growth of 78% and 14%, respectively.

Maintain OUTPERFORM and Target Price of RM1.50 based on FY22E PER of 26x, representing 15% discount to peers’ average.

Risks to our call include: (i) slower revenue recognition due to Covid-19, (ii) downturn in semiconductor sales, and (iii) delay in LCO2 ramp-up.

Source: Kenanga Research - 25 Aug 2021