Kelington Group Bhd (Trading BUY)

• KGB offers exposure to: (i) the fast-growing semiconductor industry as a provider of ultra-high purity gas solutions; and (ii) the resilient food & beverage business as a supplier of industrial gases and specialty gases such as liquid carbon dioxide. It is also involved in process engineering and general contracting activities.

• The Group’s bottomline has been rising steadily with net profit growing every year, from RM8.8m in FY Dec 2016 to RM23.9m in FY Dec 2019. Balance sheet is strong with net cash backing of RM50.1m (or 16 sen per share) as of end-March this year.

• Based on consensus numbers, KGB – which posted net profit of RM4.1m (-16% YoY) in 1QFY20 – is forecasted to make RM18m in FY Dec 2020 and RM22m in FY Dec 2021. This translates to forward PERs of 20.0x this year and 16.4x next year.

• Technically speaking – after bouncing sideways since mid-May – KGB staged a breakout from its consolidation pattern following a crossover of the negative sloping trendline that stretches back to January this year.

• On the back of renewed buying interest, KGB’s share price – which gained 7.7% to close at RM1.12 yesterday – is expected to trend higher towards our resistance thresholds of RM1.28 (R1) and RM1.40 (R2). This represents upside potentials of 14% and 25%, respectively.

• Our stop loss level is set at RM0.98 (12% downside risk).

Source: Rakuten Research - 6 Aug 2020