We were positively surprised by KGB’s announcement of two contract wins; (i) RM170m turnkey job for a bulk liquid terminal in Port Klang, and (ii) RM90m contract for the supply of ultrahigh purity (UHP) gas delivery systems for a semiconductor plant in Beijing which is involved in the design and manufacturing of dynamic random access memory (DRAM). Both jobs totalled to RM262m, bringing its YTD job wins to RM1.62b which surpassed our expectation, while orderbook stands at RM2.22b. We raise FY23F CNP by 8%, leading to a higher TP of RM1.75 (from RM1.70). Maintain OUTPERFORM.
Forecasts. Raised FY22F and FY23F earnings by 3% and 8%, respectively, to factor in the higher-than-expected order replenishment.
Maintain our OUTPERFORM call with a higher target price of RM1.75 (previously RM1.70) on FY23F PER of 23x (in line with peers’ forward average). We continue to like KGB for its: (i) unique proxy to the front-end semiconductor space, (ii) strong track record which continues to attract large MNC customers, and (iii) venture into the industrial gas segment which has high barriers to entry and yields very lucrative margins. There is no adjustment to our TP based on a 3-star ESG rating as appraised by us (see Page 4).
Risks to our call include: (i) slower revenue recognition due to on-going Covid-19 lockdowns in China, (ii) further cut in semiconductor capex, and (iii) delay in liquid CO2 ramp up.
Source: Kenanga Research - 3 Nov 2022
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