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Kenanga raises Kelington's 2023 earnings forecast by 5 pct after RM330 mln contact win

06/09/2022 11:21 AM

KUALA LUMPUR, Sept 6 (Bernama) -- Kenanga Investment Bank Bhd has raised Kelington Group Bhd's earnings forecast for 2023 by 5 per cent to factor in the company’s higher-than-expected orderbook due to its recent ultra high purity (UHP) contract win valued at about RM330 million.

The research house noted that the contract was one of the group’s largest non-turnkey awards which typically yield better margins.

The group’s current orderbook has now swelled to RM1.87 billion, which would provide very solid earnings visibility for this year and next year, it said.

"We observed that although the size of UHP contracts awarded is growing, the manpower requirements do not increase linearly,” it said in a research note.

Kenanga said this was attributable to the group’s effort in fabricating its proprietary gas equipment two years ago which started to garner customers’ favour, hence contributing to higher contract value with a similar workforce size.

Hence, the research house has maintained its “outperform” call on the stock with a higher target price of RM1.70.

Kelington's wholly-owned unit, Kelington Technologies Sdn Bhd, has secured a UHP  contract worth about RM330 million from a global semiconductor solutions company to undertake the bulk and specialty gas system distribution works for the customer’s expansion of its manufacturing facility in Kulim.

Similarly, Malacca Securities Sdn Bhd said the contract is expected to generate mid-to-high single digit earnings before interest, taxes, depreciation, and amortisation (EBITDA) margins, which is in line with the historical average for UHP works.

"Consequently, we have raised our orderbook replenishment to RM1.50 billion for this year, while keeping next year's target unchanged at RM1 billion,” it said.

At 10.22 am, KGB's share price increased three sen to RM1.27 with 845,400 shares transacted.


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