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Kelington Group (KGRB MK)
Here Come The Pretzels; Keep BUY
Target Price (Return): MYR5.40 (28.6%)
Price (Market Cap): MYR4.20 (USD749m)
ESG score: 3.3 (out of 4)
Avg Daily Turnover (MYR/USD): 7.49m/1.76m
Analyst
Jeffrey Tan
+603 2302 8112
jeffrey.tan@rhbgroup.com
Share Performance (%)
| YTD | 1m | 3m | 6m | 12m | |
|---|---|---|---|---|---|
| Absolute | 17.6 | 9.4 | 23.5 | 26.1 | 28.4 |
| Relative | 24.6 | 10.9 | 24.5 | 28.5 | 33.6 |
| 52-wk Price low/high (MYR) | 2.62 – 4.27 | ||||
- BUY, new MYR5.40 TP (from MYR4.30), 29% upside, c.3% yield. Kelington Group has received a Letter of Intent (LOI) for a maiden German hook-up contract valued at up to EUR50m (c.MYR244m), effectively securing a foothold in Europe. We see newsflow on key advanced engineering project wins fuelling a further share price re-rating. The improving risk-reward profile in the chip sector should also drive P/E expansion. Our TP (includes a 6% ESG premium) is now based on 26x FY26 forward EPS, on par with the historical KLTEC mean (previously 23x or -0.5SD from the KLTEC mean).
- Entering high season; new order wins may surpass FY22 record with European jobs. KGB has accepted an LOI for a semiconductor hook-up job in Dresden, Germany. The LOI spells out the agreed unit pricing structure and price adjustment clauses which will remain in effect until 2027. We gather that this is a precursor to a contractual agreement with the European customer (KGB’s existing customer in Malaysia) where similar arrangements were entered into in the past and with work to commence immediately. The contract value for the first phase is at a minimum of c.EUR30m (c.MYR146m), potentially rising to EUR50m (MYR244m) over two years and beyond for additional works. We are positive on the development, being KGB’s first European hook-up job and part of the MYR2.5bn European tenderbook (end-May). We note that YTD order wins (including the latest job) have reached c.MYR800m (1Q25: MYR390m). As more tender outcomes are expected by end-3Q25 and 4Q25, total FY25F order replenishments may comfortably surpass the MYR1.1bn booked in FY24 and our MYR1.26bn estimate. We lift our FY25 orderbook replenishment assumption to MYR1.8bn (no change to FY26F-27F for now). This bumps up our FY25-27F core earnings by 11%, 12.7%, and 4.5%. Other significant project tenders with results to be known soon include the JV between Taiwan’s biggest foundry and European principals for a new German fab (c.MYR1.5bn, 30% of tenderbook) and a MYR292m fab tender in India. Overall, KGB’s tenderbook of >MYR5bn (end-May) offers a solid funnel of orders that should keep it busy well into FY27F.
- Eventful 2Q25 ahead. KGB’s 2Q/1H25 results are due on 21 Aug. We expect it to track slightly ahead of our/market expectations with revenue up 20-25% QoQ against a seasonally shorter March quarter. On improving margins, core PATAMI should see double-digit QoQ/YoY expansion to MYR30-34m (1Q25: MYR26.6m). The advanced engineering segment should remain the key growth driver with stronger billings from China, Singapore, and Malaysia (c.69% of MYR1.43bn outstanding orderbook at end-March). We see the industrial gas segment posting a 23% FY25-27F revenue CAGR, underpinned by stronger LCO2 customer off-takes and the new on-site gas supply contract for an opto-electronics player in Kedah.
Forecasts and Valuation
| Dec-23 | Dec-24 | Dec-25F | Dec-26F | Dec-27F | |
|---|---|---|---|---|---|
| Total turnover (MYRm) | 1,614 | 1,272 | 1,521 | 1,652 | 1,637 |
| Recurring net profit (MYRm) | 118 | 126 | 155 | 173 | 177 |
| Recurring net profit growth (%) | 90.5 | 7.1 | 22.8 | 11.7 | 2.7 |
| Recurring P/E (x) | 27.02 | 21.52 | 17.52 | 15.69 | 15.28 |
| P/B (x) | 8.1 | 5.7 | 4.8 | 4.2 | 3.7 |
| P/CF (x) | 19.27 | 13.95 | 9.31 | 15.67 | 15.21 |
| Dividend Yield (%) | 1.0 | 2.1 | 2.9 | 3.2 | 3.3 |
| EV/EBITDA (x) | 21.38 | 13.99 | 10.59 | 9.14 | 8.54 |
| Return on average equity (%) | 32.1 | 29.0 | 29.8 | 28.5 | 25.6 |
| Net debt to equity (%) | net cash | net cash | net cash | net cash | net cash |
Overall ESG Score: 3.3 (out of 4)
E Score: 3.3 (EXCELLENT)
S Score: 3.3 (EXCELLENT)
G Score: 3.3 (EXCELLENT)
Please refer to the ESG analysis on the next page
Emissions And ESG
Trend analysis
GHG emissions captured are not directly comparable as manual data was captured prior to 2024.
| Emissions (tCO2e) | Dec-22 | Dec-23 | Dec-24 | Dec-25 |
|---|---|---|---|---|
| Scope 1 | 11,173 | 12,495 | 3,889 | na |
| Scope 2 | 3,004 | 3,807 | 15,179 | na |
| Scope 3 | 33,605 | 24,137 | 94,286 | na |
| Total emissions | 47,782 | 40,439 | 113,353 | na |
Latest ESG-Related Developments
The group targets to cut Scope 1 & 2 emissions by 10% by 2030 using 2024 as the new baseline.
The target is to lower Scope 3 emission by 5% by 2030 (2024 baseline) with a target renewable energy usage of 30% by 2035.
The group is exploring carbon capture and usage (CCU) projects as part of the decarbonisation efforts.
ESG Unbundled
Overall ESG Score: 3.3 (out of 4)
Last Updated: 26 May 2025
E Score: 3.3 (EXCELLENT)
KGB is committed to preserving the environment through various practices such as reducing electricity, water and CO2 consumption. The group designed and built the Stripper Reclaim System (SRS) with allowed manufacturers to recycle materials. It is also committed to designing exhaust systems that reduce noise pollution with emissions reduction technology.
S Score: 3.3 (EXCELLENT)
KGB has zero work-related injuries and/or fatalities with an Occupational Health & Safety Management System in place. The group is focused on attracting and retaining talent, and helping employees to further develop their skillsets. Community engagement projects include the Core Liver Baby Program and Project Sambung Sekolah.
G Score: 3.3 (EXCELLENT)
KGB has applied and adopted Company codes and policies encompassing Board policy, corporate code of conduct and policies and sustainability policies to ensure best practices and good corporate governance. Directors are skilled and from diverse backgrounds. Management has been transparent and open in communication with investor relations undertaken by a third party with regular investor briefings.
ESG Rating History
The ESG rating history shows a progression from 3.1 in late 2023 to 3.3 from early 2024 onwards. Data points: Aug-23 (3.1), Oct-23 (3.1), Dec-23 (3.1), Feb-24 (3.3), Apr-24 (3.3), Jun-24 (3.3), Aug-24 (3.3), Oct-24 (3.3), Dec-24 (3.3), Feb-25 (3.3), Apr-25 (3.3), Jun-25 (3.3), Aug-25 (3.3).
Financial Exhibits
Key drivers
- The recovery in the semiconductor sector;
- New order/contract wins;
- Stronger contributions from the industrial gas (LCO2) business.
Key risks
- Weaker-than-expected earnings;
- Delays in project execution;
- Slower-than expected recovery in the tech sector and orderbook replenishment.
Company Profile
Kelington is involved in ultra-high purity (UHP) gas and chemical delivery solutions, process engineering and general contracting. The company also produces liquid carbon dioxide (LCO2) under the industrial gas segment with food and beverage companies being a key customer.
Financial Summary
| Financial summary (MYR) | Dec-23 | Dec-24 | Dec-25F | Dec-26F | Dec-27F |
|---|---|---|---|---|---|
| Recurring EPS | 0.16 | 0.20 | 0.24 | 0.27 | 0.27 |
| DPS | 0.04 | 0.09 | 0.12 | 0.13 | 0.14 |
| BVPS | 0.52 | 0.73 | 0.87 | 1.01 | 1.14 |
| Return on average equity (%) | 32.1 | 29.0 | 29.8 | 28.5 | 25.6 |
Financial Tables
| Dec-23 | Dec-24 | Dec-25F | Dec-26F | Dec-27F | |
|---|---|---|---|---|---|
| Total turnover | 1,614 | 1,272 | 1,521 | 1,652 | 1,637 |
| Gross profit | 230 | 246 | 274 | 303 | 309 |
| EBITDA | 144 | 177 | 205 | 227 | 233 |
| Depreciation and amortisation | (11) | (15) | 0 | 0 | 0 |
| Operating profit | 133 | 162 | 205 | 227 | 233 |
| Net interest | (11) | (9) | (9) | (8) | (8) |
| Pre-tax profit | 122 | 152 | 196 | 219 | 225 |
| Taxation | (28) | (33) | (39) | (44) | (45) |
| Reported net profit | 92 | 117 | 155 | 173 | 177 |
| Recurring net profit | 118 | 126 | 155 | 173 | 177 |
| Dec-23 | Dec-24 | Dec-25F | Dec-26F | Dec-27F | |
|---|---|---|---|---|---|
| Change in working capital | 30 | 48 | 134 | (2) | (2) |
| Cash flow from operations | 165 | 194 | 291 | 173 | 178 |
| Capex | (69) | (49) | 0 | 0 | 0 |
| Cash flow from investing activities | (68) | (69) | 275 | 0 | 0 |
| Dividends paid | (19) | (58) | 0 | (77) | (86) |
| Cash flow from financing activities | (117) | (177) | (5) | (82) | (86) |
| Cash at beginning of period | 260 | 269 | 413 | 711 | 802 |
| Net change in cash | (21) | (52) | 561 | 91 | 92 |
| Ending balance cash | 245 | 212 | 974 | 802 | 894 |
| Dec-23 | Dec-24 | Dec-25F | Dec-26F | Dec-27F | |
|---|---|---|---|---|---|
| Total cash and equivalents | 269 | 413 | 711 | 802 | 894 |
| Tangible fixed assets | 169 | 209 | 209 | 209 | 209 |
| Total assets | 1,071 | 1,154 | 1,414 | 1,529 | 1,618 |
| Short-term debt | 119 | 101 | 86 | 71 | 71 |
| Total long-term debt | 56 | 76 | 86 | 96 | 96 |
| Total liabilities | 733 | 680 | 850 | 876 | 874 |
| Total equity | 338 | 474 | 565 | 653 | 744 |
| Total liabilities & equity | 1,071 | 1,154 | 1,414 | 1,529 | 1,618 |
| Dec-23 | Dec-24 | Dec-25F | Dec-26F | Dec-27F | |
|---|---|---|---|---|---|
| Revenue growth (%) | 26.2 | (21.2) | 19.6 | 8.6 | (0.9) |
| Recurrent EPS growth (%) | 118.5 | 25.6 | 22.8 | 11.7 | 2.7 |
| Gross margin (%) | 14.2 | 19.4 | 18.0 | 18.3 | 18.9 |
| Operating EBITDA margin (%) | 8.9 | 13.9 | 13.5 | 13.8 | 14.2 |
| Net profit margin (%) | 5.7 | 9.2 | 10.2 | 10.4 | 10.8 |
| Dividend payout ratio (%) | 28.6 | 49.7 | 50.0 | 50.0 | 50.0 |
| Capex/sales (%) | 4.3 | 3.8 | 0.0 | 0.0 | 0.0 |
| Interest cover (x) | 12.1 | 17.1 | 23.3 | 26.9 | 28.0 |
Charts and Recommendations
Figure 1 & 2: Project Visuals
Figure 1 shows the construction of a core shell at a fab joint venture in Dresden involving Taiwan’s largest foundry. Figure 2 displays the construction of a smart fab in Dresden where Kelington Group has secured its maiden hook-up jobs. Both images depict large-scale industrial construction sites.
Figure 3: KGB’s historical P/E band (5-year)
Key values: Mean at 18.05x, +1SD at 21.87x, +2SD at 25.69x, -1SD at 14.22x, and -2SD at 10.40x.
Figure 4: KLTEC’s historical P/E band (5-year)
Key values: Mean at 26.2x, +1SD at 31.4x, +2SD at 36.5x, -1SD at 21.1x, and -2SD at 15.9x.
Recommendation History
| Date | Recommendation | Target Price | Price |
|---|---|---|---|
| 2025-05-29 | Buy | 4.30 | 3.50 |
| 2025-02-28 | Buy | 4.30 | 3.49 |
| 2025-02-27 | Buy | 4.12 | 3.52 |
| 2025-02-09 | Buy | 4.12 | 3.44 |
| 2024-11-14 | Buy | 4.12 | 3.38 |
| 2024-08-14 | Buy | 3.90 | 3.38 |
| 2024-05-27 | Buy | 3.85 | 3.09 |
| 2024-05-21 | Buy | 3.35 | 3.03 |
| 2024-02-29 | Buy | 3.03 | 2.55 |
| 2024-01-10 | Buy | 2.64 | 2.34 |
| 2023-11-30 | Buy | 2.16 | 1.88 |
| 2023-11-24 | Buy | 1.88 | 1.70 |
| 2023-11-09 | Neutral | 1.59 | 1.53 |
| 2023-08-25 | Neutral | 1.59 | 1.53 |
| 2023-08-21 | Neutral | 1.59 | 1.49 |
Disclaimers and Important Disclosures
RHB Guide to Investment Ratings
- Buy: Share price may exceed 10% over the next 12 months.
- Trading Buy: Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain.
- Neutral: Share price may fall within the range of +/- 10% over the next 12 months.
- Take Profit: Target price has been attained. Look to accumulate at lower levels.
- Sell: Share price may fall by more than 10% over the next 12 months.
- Not Rated: Stock is not within regular research coverage.
Investment Research Disclaimers
This report is issued and distributed in Malaysia by RHB Investment Bank Berhad (“RHBIB”). The views and opinions in this report are our own as of the date hereof and is subject to change. If the Financial Services and Markets Act of the United Kingdom or the rules of the Financial Conduct Authority apply to a recipient, our obligations owed to such recipient therein are unaffected. RHBIB has no obligation to update its opinion or the information in this report. This report is for information purposes only. It is not an offer or solicitation to buy or sell any securities. All information is based on publicly available data believed to be reliable, but not independently verified. RHB and its affiliates do not guarantee its accuracy or completeness and accept no liability for any loss arising from its use. This report does not have regard to the specific investment objectives, financial situation and particular needs of any specific person. Investors should make their own independent evaluation of the information contained herein and seek their own financial, legal, and tax advice. Past performance is not a guide to future performance.
This report may contain forward-looking statements. Such statements are subject to risks and uncertainties, and actual results may differ materially. RHB expressly disclaims any obligation to update or revise any forward-looking statements.
RESTRICTIONS ON DISTRIBUTION
Malaysia: This report is issued and distributed in Malaysia by RHB Investment Bank Berhad.
Singapore: This report is issued and distributed in Singapore by RHB Bank Berhad (through its Singapore branch) which is an exempt capital markets services entity and an exempt financial adviser regulated by the Monetary Authority of Singapore. Singapore recipients should contact RHB Bank Berhad (through its Singapore branch) in respect of any matter arising from or in connection with the report.
Indonesia: This report is issued and distributed in Indonesia by PT RHB Sekuritas Indonesia. This research does not constitute an offering document and it should not be construed as an offer of securities in Indonesia.
United States: This report was prepared by RHB and is meant for distribution solely and directly to “major” U.S. institutional investors via a registered U.S. broker-dealer. RHB is not registered as a broker-dealer in the United States. Any U.S. person receiving this report and wishing to effect any transaction in any security discussed herein should do so through a U.S. registered broker-dealer.
DISCLOSURE OF CONFLICTS OF INTEREST
RHB Investment Bank Berhad, its subsidiaries and associated companies may have business relationships with, hold positions in securities of, or perform services for the subject company. For specific disclosures, please refer to the published disclosures on the respective company report page.
Analyst Certification
The analyst(s) who prepared this report hereby certify that the views expressed in this report accurately reflect their personal views about the subject securities or issuers; and no part of their compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed in this report.
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