1QFY22 CNP of RM8.3m (+49.7% YoY; -24.3% QoQ) is the group’s best first quarter results ever which came in within expectations, representing 19% each of both our and consensus estimates. Revenue rose to RM173m (+65% YoY; -3.8% QoQ) while the UHP segment managed to even grow 3.5% QoQ despite a seasonally low quarter, clearly dismissing rumours of work halting in China due to lockdowns. KGB outpaced its job replenishment rate by 17% YoY, growing its order-book to RM1.2b, while tender-book stands at RM1.4b. Reiterate our OUTPERFORM call and TP of RM1.90.

Within expectation. Kelington Group Bhd’s (KGB)’s 1QFY22 CNP of RM8.3m (+49.7% YoY; -24.3% QoQ) is the group’s best first quarter results ever which came in within expectations, representing 19% each of both our and consensus estimates.

Results’ highlight. QoQ, despite noises of China lockdowns, insufficient labor and material shortage, 1QFY22 revenue held up very well at RM173.3m (-3.8% QoQ) on the back of aggressive expansions in the semiconductor space. Interestingly, revenue from the UHP segment even recorded a 3.5% QoQ growth which clearly dismissed the rumour that work in China has been halted due to the on-going lockdown. 1QFY22 CNP of RM8.3m (-24.3% QoQ) was understandably lower as (i) the group came off its seasonally stronger quarter, and (ii) commencement of the turnkey project in Sarawak which has modest margins.

YoY, 1QFY22 revenue leapt 65.4% while CNP rose 49.7% as the semiconductor industry continued to invest in new facilities to address the chip crunch. Revenue contribution from Malaysia (+77%), Singapore (+61%) and China (+42%) recorded significant YoY growth in spite of an already high base in FY21.

Overwhelming orders. KGB managed to secure RM347m new order during the reporting quarter, which outpaced FY21 average quarterly replenishment rate (which was already a high base) by a solid 17%. This further reinforces our investment thesis on KGB being a unique proxy in Malaysia to the global front-end semiconductor space which is still seeing a healthy expansion pipeline. After recognising an all-time high 1QFY22 revenue, the group’s order-book further grew to RM1.2b (vs. RM1.1b in 4QFY21) while tenderbook remains elevated at RM1.4b.

Job delivery remains on track. While headlines continue to report on sporadic lockdowns in China, we take comfort that management has instituted necessary precautions to ensure works on the ground progress according to schedule across all provinces, as well as the turnkey project in Malaysia and other UHP jobs in Singapore.

Maintain FY22E CNP and FY23E CNP of RM44.2m and RM45.0m respectively.

Maintain OUTPERFORM and Target Price of RM1.90 based on 27x FY22E PER (+1SD to 5-year peers’ mean)

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 May 2022