Among other activities, Kelington assembles and installs infrastructure such as these for factories requiring ultra clean piping infrastructure solutions such as the semiconductor and solar making industries.
KUALA LUMPUR: RHB Research is maintaining its buy call on Kelington with a higher discounted cashflow based target price of RM1.63 TP from RM1.52.
It said on Tuesday its TP implies 17 times FY20F P/E, which it believes is well supported by the commendable 21% FY18-21F core EPS compounded annual growth rate.
“We lower core earnings to reflect the more cautious medium-term outlook for fab spending in China. We remain upbeat on earnings prospects, given the outstanding RM406mil order book, strong project pipeline, and liquid CO2 (LCO2) plant’s commissioning end-2019,” it said.
RHB Research said key risks were weaker order book replenishment, lower margins, and management execution.
Kelington recently bagged several new contracts, largely for specialised engineering works under its ultra-high purity (UHP) segment. This brought 1Q19 new orders secured to RM146mil (1Q18: RM78mil).
The UHP projects order book stands at RM295mil, or 73% of the group’s outstanding order book of RM406mil. Despite some concerns, 1Q19 new orders from China remained robust (an estimated RM40mil to RM50mil projects secured are from there.
It said Kelington was slated to announce its March quarter results by month’s end. It expects 1Q19 core earnings to surpass 1Q18’s RM2.7mil (excluding the one-off settlement claim from Biocon) – this is based on its order book expansion and better revenue mix.
However, core earnings are likely to be weaker on-quarter on seasonality.
“While we retain our new order book replenishment assumptions for FY19-21F, we take the opportunity to adjust our progress billings to reflect the more cautious fab spending outlook in China in the medium term.
“This is on concerns over the country’s protracted trade tiff with the US. We also lift our capex assumptions by RM5mil to RM10mil over the next two financial years, as we expect a ramp-up in the industrial gas business to capitalise on early opportunities. This includes an estimated RM6mil capex for a factory in China to house specialty gases,” it said.
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