Company Update
07 December 2021
Kelington Group OUTPERFORM ↔
Price : RM1.58
Christmas Came Early Target Price : RM2.50 ↔
By Samuel Tan l samueltan@kenanga.com.my
Share Price Performance
Just a week after posting QoQ growth in its latest 3QFY21
earnings, KGB announced another contract award yesterday
worth RM85m for the provision of ultra-high purity solutions for
a US-listed semiconductor customer’s new wafer fab in
Singapore, which is known for its solid-state memory. This
brings YTD job wins to a new high of RM1b while its order-
book hits a record RM1.04b. We remain positive on KGB’s
prospects owing to its healthy job pipeline and secular growth
story. Reiterate our OUTPERFORM call with a TP of RM2.50.
Finishing the year strong. Less than a week after posting QoQ growth in
its latest 3QFY21 earnings despite the FMCO challenges, Kelington Group KLCI 1,487.09
Bhd (KGB) announced another contract award yesterday worth RM85m for YTD KLCI chg -8.6%
the provision of ultra-high purity (UHP) solutions for a US-listed YTD stock price chg 88.5%
semiconductor customer known for its solid-state memory products. The
project entails the design, supply, delivery, installation and testing of specialty Stock Information
gas distribution works for the customer’s new wafer fab in Singapore which Shariah Compliant Yes
will commence immediately and is targeted to be completed by August 2023. Bloomberg Ticker KGRB MK Equity
Market Cap (RM m) 1,016.0
More to come next year. Similar with a previous customer which awarded Shares Outstanding 643.0
all the packages for its new semiconductor fab in Singapore to KGB, we 52-week range (H) 1.88
expect this customer to likely have more packages in the pipeline given its 52-week range (L) 0.77
3-mth avg daily vol: 6,125,013
commitment to invest more than US$150b globally over the next decade to
Free Float 47%
accelerate the manufacturing of memory chips used in mobile phones and Beta 1.2
personal computers. Judging from the previous award trend, we may be able
to look forward to another one to two packages from this customer in the Major Shareholders
following months that would involve jobs such as bulk gas and abatement Palace Star 21.1%
systems. Sun Lead International Ltd 6.2%
CIMB Group Holdings Bhd 5.8%
Order-book swells to RM1.04b. Including this recent win, KGB’s order
replenishment for FY21 has hit the RM1b mark (vs. RM490m in FY20) while Summary Earnings Table
its outstanding order-book has swelled to another all-time high of RM1.04b FYE Dec (RM m) 2020A 2021E 2022E
with 49% coming from the UHP segment. Turnover 394.6 495.3 693.8
EBITDA 33.5 50.8 72.7
Elevated demand for chips to persist. Having observed the chip shortage PBT 20.9 42.9 62.5
scene for more than a year, we are convinced that the demand surge for Net Profit (NP) 17.5 32.3 47.0
semiconductors is not a temporary spike due to the pandemic but coming Consensus (NP) N.A. 29.5 42.0
from a new wave of demand. Earnings transcripts from large wafer fab Earning. Revision N.A. 0% 0%
players have also reiterated that this shortage will likely continue for the next EPS (sen) 2.8 5.1 7.4
2-3 years, which means that fab expansions will have to continue EPS growth (%) -32.3 84.7 45.7
aggressively. Hence, we remain positive on KGB’s prospects owing to its NDPS (sen) 0.8 1.3 1.9
BVPS (RM) 0.27 0.30 0.36
niche expertise which offers exposure to the front-end semiconductor space.
Price/BV (x) 5.9 5.2 4.4
Maintain FY21E and FY22E earnings at RM32.3m and RM47.0m, PER (x) 57.2 31.0 21.2
representing growth of 85% and 46%, respectively. Gearing (x) 0.3 0.3 0.2
ROA (%) 5.0 8.6 10.4
Maintain our OUTPERFORM call with an unchanged Target Price of ROE (%) 10.4 16.7 20.6
RM2.50 on FY22E PER of 33x (+1SD to 3-year peer mean), justified by the Dividend Yield (%) 0.5 0.8 1.2
group’s healthy job pipeline and secular growth story.
Risks to our call include: (i) slower revenue recognition due to Covid-19,
(ii) downturn in semiconductor sales, and (iii) delay in liquid CO2 ramp up.
PP7004/02/2013(031762)
Kelington Group Company Update
07 December 2021
Income Statement Financial Data & Ratios
FY Dec (RM m) 2018A 2019A 2020A 2021E 2022E FY Dec 2018A 2019A 2020A 2021E 2022E
Revenue 350.0 379.8 394.6 495.3 693.8 Growth (%)
EBITDA 29.0 35.0 33.5 50.8 72.7 Turnover 11.7 8.5 3.9 25.5 40.1
Depre & Amor -3.1 -2.1 -5.1 -5.4 -7.7 EBITDA 50.8 20.7 -4.1 51.5 43.0
Operating Profit 25.9 32.9 28.4 45.4 65.0 Operating Profit 44.6 26.9 -13.6 59.7 43.2
Other Income 0.9 5.3 8.7 3.8 5.4 PBT 45.7 26.3 -33.7 104.7 45.7
Interest Exp -0.9 -1.3 -2.5 -2.5 -2.5 Adj Net Profit 58.2 30.9 -28.4 84.7 45.7
Associate 0.0 0.0 -5.0 0.0 0.0
PBT 25.0 31.6 20.9 42.9 62.5 Profitability (%)
Taxation -6.7 -7.7 -3.4 -10.4 -15.2 EBITDA Margin 8.3 9.2 8.5 10.3 10.5
Minority Interest -0.3 -0.5 0.1 0.2 0.3 Operating Margin 7.4 8.7 7.2 9.2 9.4
PATAMI 18.6 24.4 17.5 32.3 47.0 PBT Margin 7.1 8.3 5.3 8.7 9.0
Core PATAMI 18.6 24.4 17.5 32.3 47.0 Core Net Margin 5.3 6.4 4.4 6.5 6.8
Effective Tax
Rate 26.8 24.3 16.0 24.3 24.3
Balance Sheet ROA 6.1 7.7 8.1 5.0 8.6
FY Dec (RM m) 2018A 2019A 2020A 2021E 2022E ROE 16.1 15.7 10.4 16.7 20.6
Fixed Assets 24.7 53.0 59.7 84.2 119.6
Intangible Assets 6.3 6.4 6.4 6.4 6.4 DuPont Analysis
Other FA 0.0 4.3 4.7 4.7 4.7 Net Margin (%) 5.3 6.4 4.4 6.5 6.8
Inventories 0.2 0.6 2.8 3.4 4.8 Assets Turnover (x) 1.4 1.3 1.1 1.3 1.5
Receivables 81.4 90.9 74.2 93.1 130.5 Leverage Factor (x) 2.1 1.9 2.1 2.0 2.0
Other CA 88.0 62.9 70.6 70.6 70.6 ROE (%) 16.1 15.7 10.4 16.7 20.6
Cash 42.9 85.1 132.0 114.6 114.1
Total Assets 243.5 303.1 350.3 377.1 450.7 Leverage
Debt/Asset (x) 0.1 0.1 0.2 0.1 0.1
Payables 77.8 71.6 89.1 109.7 153.3 Debt/Equity (x) 0.1 0.2 0.3 0.3 0.2
ST Borrowings 15.6 12.1 28.3 28.3 28.3 Net (Cash)/Debt -25.8 -49.7 -76.5 -59.1 -58.7
Other ST Liability 32.3 37.9 35.1 16.3 10.9 Net Debt/Equity (x) -0.2 -0.3 -0.5 -0.3 -0.3
LT Borrowings 1.5 23.3 27.2 27.2 27.2
Other LT Liability 0.1 2.6 2.6 2.6 2.6 Valuations
Net Assets 116.2 155.5 168.0 193.0 228.4 Core EPS (sen) 3.8 4.1 2.8 5.1 7.4
DPS (sen) 0.0 1.0 0.8 1.3 1.9
Shr. Equity 116.1 155.3 168.0 192.8 228.0 BVPS (RM) 0.2 0.3 0.3 0.4 0.4
Mnrt. Interest 0.1 0.3 0.3 0.2 0.3 PER (x) 41.8 38.7 57.2 31.0 21.2
Total Equity 116.2 155.5 168.3 193.0 228.4 Div. Yield (%) 0.0 0.6 0.5 0.8 1.2
P/BV (x) 6.7 6.1 5.9 5.2 4.4
Cashflow Statement EV/EBITDA (x) 26.0 25.6 27.5 18.5 13.0
FY Dec (RM m) 2018A 2019A 2020A 2021E 2022E
Operating CF 8.4 20.0 45.7 34.9 51.3
Investing CF -12.1 -35.2 -12.0 -30.0 -43.0
Financing CF 6.7 31.7 11.3 -4.1 -8.8
Source: Kenanga Research
Fwd PER Band Fwd PBV Band
Source: Bloomberg, Kenanga Research
PP7004/02/2013(031762) Page 2 of 4
Kelington Group Company Update
07 December 2021
Malaysian Technology Peers Comparison
Core Earnings ROE Net Div
Name Revenue Growth PER (x) - Core Earnings PBV (x)
Last Price Mkt Cap Shariah Current Growth (%) Yld (%) Target Price
Rating
(RM) (RM'm) Compliant FYE 1-Yr. 2-Yr. 1-Yr. 2-Yr. 1-Yr. 2-Yr. 1-Yr. 1-Yr. 1-Yr. (RM)
Hist. Hist.
Fwd. Fwd. Fwd. Fwd. Fwd. Fwd. Fwd. Fwd. Fwd.
D&O GREEN TECHNOLOGIES BHD 5.50 6,804.3 Y 12/2021 48.9% 26.4% 123% 34.0% 141.7 63.5 47.4 17.0 13.9 21.9% 0.2% 6.60 OP
GHL SYSTEMS BHD 1.87 2,134.6 Y 12/2021 4.3% 36.3% -10.5% 71.6% 69.5 77.6 45.2 4.5 4.2 5.4% 0.0% 2.30 OP
INARI AMERTRON BHD 3.85 14,237.5 Y 06/2022 22.5% 14.6% 11.3% 14.7% 43.4 35.9 1.3 10.4 10.2 26.4% 2.5% 4.80 OP
JHM CONSOLIDATION BHD 1.70 947.9 Y 12/2021 11.7% 17.7% -5.3% 63.3% 37.8 40.0 24.5 4.3 3.7 13.6% 0.9% 1.80 MP
KELINGTON GROUP BHD 1.58 1,016.0 Y 12/2021 25.5% 40.1% 84.7% 45.7% 61.9 33.5 23.0 6.4 5.6 16.7% 0.7% 2.50 OP
KESM INDUSTRIES BHD 11.98 515.3 Y 07/2022 4.9% 6.4% 4072% 250% 131.0 37.4 25.0 1.5 1.4 3.8% 0.7% 11.40 MP
MALAYSIAN PACIFIC INDUSTRIES BHD 48.00 9,547.0 Y 06/2022 10.0% 10.0% 11.3% 10.0% 32.2 28.8 26.2 7.1 8.0 15.6% 0.6% 56.20 OP
P.I.E. INDUSTRIAL BHD 3.74 1,436.3 Y 12/2021 59.9% 10.6% 31.0% 29.9% 32.3 24.7 19.0 1.3 1.5 11.5% 1.8% 4.30 OP
SKP RESOURCES BHD 1.70 2,656.0 Y 03/2022 12.3% 12.4% 21.7% 12.4% 21.6 17.7 15.8 4.1 3.7 21.0% 2.8% 2.60 OP
UNISEM (M) BHD 4.04 6,516.8 Y 12/2021 20.0% 15.0% 47.5% 21.0% 46.8 31.7 26.2 3.8 3.5 11.2% 1.4% 4.90 OP
Source: Kenanga Research
PP7004/02/2013(031762) Page 3 of 4
Kelington Group Company Update
07 December 2021
Stock Ratings are defined as follows:
Stock Recommendations
OUTPERFORM : A particular stock’s Expected Total Return is MORE than 10%
MARKET PERFORM : A particular stock’s Expected Total Return is WITHIN the range of -5% to 10%
UNDERPERFORM : A particular stock’s Expected Total Return is LESS than -5%
Sector Recommendations***
OVERWEIGHT : A particular sector’s Expected Total Return is MORE than 10%
NEUTRAL : A particular sector’s Expected Total Return is WITHIN the range of -5% to 10%
UNDERWEIGHT : A particular sector’s Expected Total Return is LESS than -5%
***Sector recommendations are defined based on market capitalisation weighted average expected total
return for stocks under our coverage.
This document has been prepared for general circulation based on information obtained from sources believed to be reliable but we do not
make any representations as to its accuracy or completeness. Any recommendation contained in this document does not have regard to the
specific investment objectives, financial situation and the particular needs of any specific person who may read this document. This
document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees.
Kenanga Investment Bank Berhad accepts no liability whatsoever for any direct or consequential loss arising from any use of this document
or any solicitations of an offer to buy or sell any securities. Kenanga Investment Bank Berhad and its associates, their directors, and/or
employees may have positions in, and may effect transactions in securities mentioned herein from time to time in the open market or
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Level 17, Kenanga Tower, 237, Jalan Tun Razak, 50400 Kuala Lumpur, Malaysia
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PP7004/02/2013(031762) Page 4 of 4
