KGB chalked up record earnings with a 1HFY22 CNP of RM21.9m (+69.5% YoY) which was within expectations. 1HFY22 revenue more than doubled YoY on higher recognition from a turnkey project in Malaysia while revenue from Singapore similarly more than doubled YoY on the back of strong orders from various semiconductor MNCs. We continue to like KGB for it being a unique proxy to global wafer fab expansion. Reiterate our OUTPERFORM call and TP of RM1.60.

Within expectations. Kelington Group Bhd (KGB) chalked up record earnings with 1HFY22 CNP of RM21.9m which came in within expectations, representing 49% and 48% of our full-year forecast and the full-year consensus estimate, respectively.

Results’ highlights. YoY, 1HFY22 revenue soared 110% despite coming from an already high base last year while CNP jumped 69.5% to RM21.9m as the group continued to ride on the capex plans of major semiconductor players. The strong set of numbers was supported by robust revenue recognition from projects across all countries. Malaysia was the largest revenue growth contributor (+177% YoY) thanks to the turnkey project in Sarawak which is progressing well. Revenue from China regained momentum (+19.7%) as lockdown restrictions eased while contribution from Singapore (+118%) continued to exhibit solid growth and is likely to be sustained, backed by steady semiconductor wafer fab expansion by various MNCs in the region.

Cementing its track record in delivering earnings. KGB’s latest financial achievement has clearly demonstrated that it has massive room for growth (even from an already high base a year ago). As of 30 June 2022, the group has secured RM798m (which has grown to c.RM950m as of early-Aug) of new orders while outstanding orderbook stands at c.RM1.85b. We believe KGB will further cement its track record in delivering earnings in 2HFY22.

Forecasts. Maintained.

Maintain OUTPERFORM and TP of RM1.60 based on 23x FY23F PER, in line with regional peers’ average (e.g. PNC Process Systems and Shanghai Gentech). There is no adjustment to TP based on ESG (given a 3-star rating as appraised by us).

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 - 16 Aug 2022