Tuesday, 07 Dec, 2021
Company Update
Kelington Group Bhd Kenneth Leong
kennethleong@msec.com.my
Ending 2021 well (603) 2201 2100
Summary BUY
Kelington Group Bhd (KGB) via its wholly-owned subsidiary, Kelington Engineering Share price RM1.58
(S) Pte Ltd (KES) has received an award of contract an undisclosed global leader in Target price RM2.01
engineering and project management of high-technology facilities to undertake the Previous TP RM2.01
Capital upside 27.2%
specialty gas system distribution works for a world leader in innovative memory
Dividend return 1.1%
solutions’ fabrication facilities in Singapore. Total return 28.3%
KGB will be undertaking the design, supply, delivery to site, installation, testing for Company profile
the contract. The project valued at RM85.0m will commence immediately in Principally involved in the
provision of engineering services,
December 2021 and expected to be completed by August 2023.
construction and general trading
Following the latest win, KGB’s year-to-date orderbook replenishment now stood at Stock information
approximately RM976.0m; exceeding our expectations of RM900.0m for the year. Bursa Code 0151
We gather that year-to-date contract wins represents record high orderbook Bloomberg ticker KGRB MK
Listing market MAIN
replenishment for KGB, which is a testament for the group’s capability to undertake Share issued (m) 645.2
larger number of work orders. Market Cap (m) 1,019.5
52W High/Low 1.88 / 0.77
Moving forward, KGB’s outstanding orderbook of approximately RM1.04bn, which Est. Free float 46.9
Beta 1.2
represents an orderbook-to-cover ratio of 2.6x against FY20 revenue of RM394.6m 3-mth avg vol (‘000) 6,203.3
will provide strong earnings visibility over the next 2 years. We reckon that the Shariah compliant Yes
contract flows will continue, moving into FY22f, backed by the tenderbook of more
than RM1.00bn worth of contracts, whilst semiconductor outlook remains relatively Major shareholders %
sound amid the shortage of chips and pent-up demand globally. Palace Star 21.1
Sun Lead International Ltd 6.2
CIMB Group Holdings Bhd 5.8
With the relatively large-scale contract turnkey contract valued at RM420.0m
secured in mid-September 2021, earnings recognition from the aforementioned Share price vs. KLCI (%)
project may accelerate moving into FY22f. At the same time, the industrial gas Hist. return 1M 3M 12M
Absolute -5.4 12.9 -5.4
segment is expected to see improve contribution next year with the group now at
Relative -1.7 21.8 102.8
the final stage to secure the Halal Certification from JAKIM.
Earnings snapshot
Valuation & Recommendation FYE (Dec) FY20 FY21f FY22f
PATMI (m) 17.5 29.6 43.2
EPS (sen) 2.7 4.6 6.7
Although the orderbook replenishment exceeds our expectations, we made no
P/E (x) 58.2 34.4 23.6
changes to our earnings forecast as contribution from the latest win may only
materialise in FY22f. Hence, we retained our BUY recommendation on KGB, with an
Relative performance chart
unchanged target price of RM2.01.
Our fair value is derived by assigning targeted P/E multiple of 30.0x to its FY22f
EPS of 6.7 sen. The assigned P/E multiple is in line with valuations of the
technology sector that is trading at forward valuations of 31.2x in 2022.
Risks to our recommendation and target price include weaker-than-expected
targeted orderbook replenishment of RM450.0m for FY22f. Any reversal in
semiconductor sales may dampen the large scale UHP projects delivery to China
Tuesday, 07 Dec, 2021 2
and Singapore, given that the UHP segment plays a major part in total revenue
contribution and earnings growth.
Financial Highlights
All items in (RM m) unless otherwise stated
Income Statement Balance Sheet
FYE Dec (RM m) FY18 FY19 FY20 FY21f FY22f FYE Dec (RM m) FY18 FY19 FY20 FY21f FY22f
Revenue 349.2 379.8 394.6 508.6 834.5 Cash 67.1 85.2 132.0 124.3 130.7
EBITDA 26.0 35.0 27.8 47.0 66.8 Receivables 98.3 90.9 74.2 104.5 114.3
EBIT 25.2 31.9 22.7 41.4 60.2 Inventories 0.2 0.6 2.8 3.6 5.7
Net finance income/ (cost) (0.2) (0.3) (1.7) (2.5) (2.7) PPE 24.7 53.0 59.7 69.3 87.7
Associates & JV - - - - - Others 53.5 46.8 68.6 75.3 73.3
Profit before tax 25.0 31.6 20.9 38.9 57.4 Assets 243.5 304.5 350.3 381.4 441.3
Tax (6.7) (7.7) (3.4) (8.6) (13.2)
Net profit 18.3 23.9 17.6 30.4 44.2 Debts 17.1 38.8 58.5 59.8 63.6
Minority interest (0.3) (0.5) 0.1 0.8 1.0 Payables 77.8 43.3 71.5 105.8 133.2
Core earnings 18.6 24.4 17.5 29.6 43.2 Others 32.4 66.9 52.0 25.9 22.8
Diluted Core earnings - - - 30.6 45.3
Exceptional items - - - - - Liabilities 127.3 149.0 182.0 191.5 219.5
Reported earnings 18.6 24.4 17.5 29.6 43.2 Shareholder's equity 78.2 116.1 155.8 168.6 190.1
Minority interest 0.1 0.3 0.3 0.3 0.3
Cash Flow Statement Equity 116.2 155.5 168.3 189.8 221.8
FYE Dec (RM m) FY18 FY19 FY20 FY21f FY22f
Profit before taxation 25.0 31.6 20.9 38.9 57.4 Valuation & Ratios
Depreciation & amortisation 2.1 3.1 5.1 5.7 6.6 FYE Dec (RM m) FY18 FY19 FY20 FY21f FY22f
Changes in working capital (16.3) (19.1) 18.6 78.6 62.5 Core EPS (sen) 2.9 3.8 2.7 4.6 6.7
Share of JV profits - - - - - Diluted Core EPS (sen) - - - 3.6 5.3
Taxation (5.9) (7.9) (5.1) (8.6) (13.2) P/E (x) 54.7 41.8 58.2 34.4 23.6
Others 1.1 0.8 5.2 2.5 2.7 Diluted P/E (x) - - - 44.3 30.0
Operating cash flow 8.4 21.1 45.7 13.7 15.7 DPS (sen) 1.3 1.0 0.8 1.3 1.8
Dividend yield 0.8% 0.6% 0.5% 0.8% 1.1%
Net capex (12.6) (34.9) (12.3) (15.3) (25.0) BVPS (RM) 0.18 0.24 0.26 0.29 0.34
Others 0.5 (0.3) 0.3 - - P/B (x) 8.8 6.6 6.1 5.4 4.6
Investing cash flow (12.1) (35.2) (12.0) (15.3) (25.0)
EBITDA margin 7.4% 9.2% 7.1% 9.3% 8.0%
Changes in borrowings (10.8) 21.7 19.7 1.3 3.8 EBIT margin 7.2% 8.4% 5.8% 8.1% 7.2%
Issuance of shares 1.9 24.2 20.2 - - PBT margin 7.2% 8.3% 5.3% 7.7% 6.9%
Dividends paid (2.3) (3.7) (8.1) (4.8) (8.1) PAT margin 5.2% 6.3% 4.5% 6.0% 5.3%
Others (3.7) (8.1) (4.8) (8.1) (11.3) Core PAT margin 5.3% 6.4% 4.4% 5.8% 5.2%
Financing cash flow 6.7 30.6 11.3 (5.6) 16.2
ROE 16.0% 15.7% 10.4% 15.6% 19.5%
Net cash flow 3.0 16.5 45.0 (7.1) 6.9 ROA 7.7% 8.0% 5.0% 7.8% 9.8%
Forex 0.2 (0.7) 0.8 (0.5) (0.5) Net gearing Net Cash Net Cash Net Cash Net Cash Net Cash
Others - - - - -
Beginning cash 49.0 52.2 68.0 113.8 106.2
Ending cash 52.2 68.0 113.8 106.2 112.5
