KGB: Sector Player Projects Record Earnings Driven by Cost Efficiencies

A leading player in the engineering services sector is anticipated to report robust financial results for the third quarter of 2025, with core profit after tax and minority interests (PATAMI) projected to hit a new quarterly high, ranging between MYR35-40 million. This represents a significant quarter-on-quarter and year-on-year increase of 9-23%. The strong performance is largely attributed to enhanced cost efficiencies, which are expected to drive a further uptick in net profit margins from 11.7% in 2Q25.

Performance Drivers and Strengths

The advanced engineering services segment remains the primary growth catalyst, historically contributing 70% of revenue in the first half of the year. This segment is buoyed by solid contributions from Singapore and Malaysia, effectively offsetting weaker revenue from China. The industrial gas business also continues to provide stable support through consistent liquid carbon dioxide (LCO2) demand, despite some softer project and specialty gas sales.

This strong operational momentum is underpinned by a robust outstanding order book exceeding MYR1 billion and new order wins totaling over MYR1.1 billion year-to-date, ensuring sustained activity well into fiscal year 2027.

Challenges and Project Updates

While the outlook remains positive, the company navigates certain challenges, including softer project revenue and reduced specialty gas sales, alongside weaker contributions from the China market. Management has also indicated some delays in tender outcomes, with certain decisions now expected in the first half of 2026.

A notable development includes the downsizing of a tender for the second German fabrication plant, with a portion of the project being farmed out to another contractor. This reduction, estimated at MYR300-400 million, is expected to be largely offset by potential expansions in the tender book for India, which could add up to MYR1.4 billion to future projects, reflecting an adoption of “offset manufacturing” where a wider scope of services is outsourced to contractors.

Future Outlook and Strategic Ventures

Looking ahead, the company is set to formalize a joint venture agreement for a maiden green hydrogen (H2O) project by the end of November. This initiative involves constructing a 2MW production hub, with initial H2O production slated for the second half of 2026. This venture leverages a small hydro power plant for energy and aims to supply hydrogen-powered buses, with SKS Coachbuilders being the initial off-taker.

Additionally, the company is actively exploring a similar green H2O partnership with the Sarawak State Government, complementing its existing production of other specialty gases. The investment bank maintains a “BUY” recommendation for the stock, reinforcing a positive outlook supported by sustained profitability, a healthy order book, and strategic diversification into new growth areas like green hydrogen.