KGB: Earnings Beat Expectations on Cost Efficiencies, Target Price Raised
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
A recent investment bank report highlights a positive outlook for an unnamed engineering group, citing sustained earnings growth and robust margin accretion following its 4Q25 performance. The firm is set to maintain a double-digit earnings growth trajectory, supported by a significant order book and strategic focus on high-margin projects.
Performance Review
The company delivered strong financial results, driven by effective cost optimization efforts. This led to improved profitability, particularly within its industrial gas segment, despite a 19% year-on-year revenue decline in that specific sector due to the loss of a key customer in Sarawak. Management has underscored its commitment to prioritizing higher-margin jobs, with some projects expected to yield margins exceeding 30%. The overarching goal is to achieve MYR1.5-2bn in order book replenishment for FY26, building on FY25’s MYR1.25bn.
Strategic Expansion and Order Book Status
The group has already secured MYR100m in orders year-to-date and anticipates substantial tender outcomes over the next 6-12 months from several key regions:
- Singapore: Participation in a mega fabrication (fab) plant construction by a leading European customer, involving a USD24bn NAND flash memory facility. Tenders are expected in 2Q26/3Q26.
- India: Final stages of negotiation for large electronics packages and confirmed entry into the market with MYR40m orders for gas filtration units, tapping into a projected USD12.4bn chip market with a 7% CAGR from 2026-2031. The India tenderbook currently stands at MYR1.25bn.
- Germany: Following a maiden MYR158m hook-up project last August (with MYR137m outstanding), the group is vying for over MYR100m in additional orders from integrated device manufacturers (IDMs), leveraging the EU Chips Act’s EUR20bn incentives. The European tender book alone stands at MYR1.55bn.
- Japan: Qualification as a “Trusted Partner” for a major global chipmaker is expected to lead to tenders in 2H26.
- Domestic Market: Actively competing for a MYR500-600m major fab project in the Klang Valley.
The current outstanding order book stands at a healthy MYR1.38bn, ensuring busy operations well into FY27, with advanced engineering works constituting 71% of this total. In the industrial gas sector, the company is shifting towards long-term, recurring on-site gas supply contracts (10-15 years) and exploring new energy ventures like green hydrogen and compressed bio-gas.
Investment Recommendation
The investment bank maintains a BUY recommendation, raising its target price to RM0.25, representing a 25.0% upside from the last traded price of RM0.20. Key downside risks highlighted include softer-than-expected earnings, delays in project execution, weaker orderbook replenishment, and geopolitical disruptions.
