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This article first appeared in The Edge Financial Daily on February 13, 2019

Kelington Group Bhd
(Feb 12, RM1.20)
Maintain buy with a target price (TP) of RM1.60:
Kelington Group Bhd has announced its maiden 2019 contract wins amounting to S$31 million (RM93 million). The group is off to a good start to surpass total replenishment wins of RM424 million for financial year 2018 (FY18), a record high. The awarding of this contract by one of the world’s largest gas companies showcases Kelington’s ability and reputation as an ultra high purity (UHP) player. We maintained our “buy” call and TP of RM1.60.

 

Under this contract, Kelington will design and construct an UHP electronics special gases plant, also including mechanical and electrical works, and supplying a processing system for the plant. Having completed the design work, Kelington will commence construction work by March 2019, targeting for completion by end-2019. Assuming a 16% gross profit margin — in line with the historical UHP segment margin — we expect this to contribute RM15 million to our FY19 forecasts, making up 22% of our estimates.

We made no changes to our assumptions as this falls under our FY19 replenishment target of RM500 million. Inclusive of this win, the outstanding order book stands at RM468 million as the UHP continues to make up the bulk at 65%, process engineering at 23% and general contracting the remaining 12%. The tender book remains sizeable at RM1.2 billion, focusing mostly on the UHP segment across all markets.

We maintained our “buy” call on Kelington and 12-month TP of RM1.60, based on a 16 times price-earnings ratio on a fully diluted FY19 estimate earnings per share. We continue to like the company as it is likely to benefit from the high capital expenditure (capex) spending in China’s semiconductor industry, and given the compelling long-term growth story as it expands into the industrial gas market. — Affin Hwang Capital, Feb 12

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