Kenanga Research said KGB is well-positioned for growth, buoyed by high-margin ultra-high purity projects making up the majority of its RM1.45bil order book.
PETALING JAYA: Kelington Group Bhd
(KGB) is likely to secure RM1.2bil new contracts for the financial year 2024 (FY24) and RM1.6bil in FY25.
As at the end of the third quarter (3Q24), the group had secured RM1bil in new job wins. Kenanga Research said Kelington’s management is optimistic about securing contracts from the new market in the first half of next year, supported by its strong track record and a strong partner.
It said KGB is well-positioned for growth, buoyed by high-margin ultra-high purity projects making up the majority of its RM1.45bil order book, and a rising tender book supported by a strategic partnership for the market in Germany.
Its tender book has also expanded to RM2.62bil, a notable increase from RM1.67bil in 2Q24 and this leads to a revision of its margin and order book assumptions. The research house has raised the group’s FY24 and FY25 net profit forecasts by 8% and 15%, respectively, driven by gross profit margin assumptions of 19%, versus 16.5% previously.
It also increased FY25 new orders expectations by RM300mil to RM1.6bil.
Kenanga Research has maintained an “outperform” call on the stock with a target price of RM4.16 a share. The risks to its call include a slowdown in wafer fab investment, worsening Sino-US chip war, and low utilisation of its liquid carbon dioxide (LCO2) plants.
In industrial gasses, strong liquid carbon dioxide demand is expected to drive growth, with capacity expansion planned as utilisation nears 90% within three to four years.
The addition of an industrial gas subsidiary and potential carbon capture partnerships enhances further growth potential, it added.
Operating at a 60% utilisation rate on its 120,000 tonnes annual capacity, KGB has secured adjacent land near its two LCO2 plants and plans to expand capacity once utilisation reaches 90%, projected within three to four years.
Additionally, KGB is going to complete the acquisition of the remaining 9% stake in its 91%-owned industrial gas subsidiary by Nov 19, 2024, that is expected to enhance group contributions, it said.
KGB has also discontinued discussions on acquiring an Indonesian LCO2 business due to unmet conditions from the seller.
