Kelington Group Bhd ("KGB") closed FY2018 on a high note with record orderbook replenishment and results exceeding our expectations. Industrial gas division remains on track to deliver earnings when the LCO2 plant starts commissioning by 3Q19. We are upgrading our target price to RM 1.68 based on 16x PER FY20 based on closest related peers average.

KGB's ended 2018 on a high note with record new orders secured totalling RM424m. In early February 2019, the Group secured a SGD31m (RM93m) contract to provide turnkey construction and engineering services in Singapore for one of the world's largest gas companies. KGB's tender book remains sizeable at over RM1bn. 

KGB remains a prime beneficiary and proxy for China's semiconductor chip ambitions "Made in China 2025" even though China has recently downplayed their ambitions and considered plans to delay some targets on their industrial program of high-end technology and being self-reliant in the memory chips and semiconductor space. 

KGB's game changer liquid carbon dioxide (LCO2), industrial gas plant with 50,000 tonnes production capacity to be ramped up progressively in Kerteh located next to Petronas Gas, which will come onstream 3Q19, remains on track to be 2nd largest player and is already in talks with customers for off -take on their production capacity. 

KGB's FY2018 revenue grew to RM349m and net profit hit a record high of RM18.5m while its balance sheet continues to be in net cash position. Growth catalyst would be supported by its industrial gas division with improving margins and stable recurring income as we project double digit EPS growth of 26% in FY19 and 19% in FY20.

Source: Rakuten Research - 4 Mar 2019