KGB: Strong Earnings Beat on Robust Margins, Target Price Upgraded

The company concluded 2025 with a significantly strong performance, reporting a core profit increase of 25% year-on-year to RM159 million. This outcome substantially surpassed both AmInvestment Bank’s and consensus estimates by 105%, reflecting an impressive operational period.

Performance Review

The stellar financial results were primarily driven by enhanced margins, which rose by 2.2 percentage points year-on-year to 21% at a gross level. This margin expansion was attributed to a favourable demand-supply environment coupled with management’s disciplined strategy of prioritising profitability and margin quality over simply chasing revenue volume. This selective approach has proven effective in optimising financial returns.

Future Outlook and Order Book

Looking ahead, AmInvestment Bank anticipates the positive momentum to continue into 2026, forecasting another year of double-digit earnings growth. This outlook is supported by an expected strengthening of the order book throughout the year. Management projects a significant pick-up in tender activity during the second and third quarters of 2026, with new order wins targeted to grow between 20-60% year-on-year, potentially reaching RM1.5 billion to RM2.0 billion. This growth is underpinned by ongoing capital expenditure cycles in critical sectors such as memory, power semiconductors, and global supply-chain localisation efforts.

Despite a recent 16% quarter-on-quarter decline in the order book to RM1.38 billion, and the tender book remaining flat at RM4.65 billion, analysts are not overly concerned. The expectation of a meaningful rebound in tender activity in the coming quarters provides confidence in the company’s ability to replenish its pipeline and sustain growth.

Investment Rating and Target Price

In light of the robust performance and positive outlook, AmInvestment Bank has reiterated its “BUY” recommendation for the company. The target price has been upgraded to RM6.70 per share, from the previous RM6.45, implying a potential return of 30% from its last traded price of RM5.21. This revised valuation is based on an unchanged target price-to-earnings (PE) ratio of 25x applied to its estimated CY27 earnings per share. The investment bank noted that while current valuations are above historical norms, a rerating is deemed justified due to strengthened visibility, solid execution, and expanding regional presence.

Challenges and Risks

While the outlook remains positive, potential risks include delays in project awards or execution, which could impact revenue timing and forecasts. Furthermore, a significant portion of the company’s revenues is non-recurring. This ‘lumpy’ nature means that failure to secure timely replacement contracts could lead to periods of lower revenue and profitability if existing customers do not expand or the company fails to attract new clients.