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Kelington Group Berhad Navigates Q1 2025 with Strategic Resilience and Strong Profitability
Kelington Group Berhad (KGB), a key player in engineering and industrial gases, has just released its First Quarter 2025 financial results. While revenue saw a dip, the report highlights the Group’s strategic focus, improved profitability, and a robust financial position. Let’s dive into the details to understand how KGB is positioning itself for future growth amidst evolving market dynamics.
Q1 2025 Financial Performance: A Closer Look
KGB’s latest quarter saw a 20% decline in revenue compared to the same period last year. However, this was primarily attributed to timing differences in revenue recognition from projects, especially in Malaysia. Despite the softer topline, the Group demonstrated impressive resilience in its bottom line, with both profit before tax and profit after tax showing healthy growth.
Q1 2025
Revenue: RM270.3 million
Profit Before Tax (PBT): RM34.2 million
Profit After Tax (PAT): RM26.6 million
Profit Attributable to Shareholders: RM26.6 million
Gross Profit Margin: 18.0%
Q1 2024
Revenue: RM339.3 million
Profit Before Tax (PBT): RM32.7 million
Profit After Tax (PAT): RM25.6 million
Profit Attributable to Shareholders: RM24.8 million
Gross Profit Margin: 15.6%
The increase in profitability, despite lower revenue, was driven by several factors: enhanced margins due to a more favorable project portfolio and strategic revenue mix, improved other income, and a one-off impairment reversal gain of RM2.1 million from a recovered debt in Malaysia. This reflects KGB’s effective cost management and focus on higher-value projects.
Segmental Performance: Shifting Contributions
KGB’s business is segmented into Engineering (comprising Advanced Engineering, Process Engineering, and General Contracting) and Industrial Gases.
- Advanced Engineering (formerly Ultra High Purity or UHP): This segment remains the Group’s powerhouse, contributing 74% of total revenue in Q1 2025, up from 61% in Q1 2024. While revenue dipped slightly by 3% to RM199.5 million, its increased share in the overall revenue mix led to stronger project margins, underscoring KGB’s strategic emphasis on this high-value segment, particularly in the semiconductor and electrical and electronics (E&E) sectors.
- Industrial Gases: Revenue from this division declined by 24% compared to the same period last year. While sales of liquid carbon dioxide (LCO₂) continued to grow in both domestic and export markets, the overall decline was attributed to softer demand for certain specialty gases and reduced project-related work.
- Other Engineering Segments: Process Engineering and General Contracting divisions saw revenue declines of 57% and 63% respectively. This was primarily due to major projects in Malaysia and Singapore nearing completion, leading to a gradual reduction in revenue recognition from these areas.
Geographical Insights
In terms of geographical contribution, China led with 37% of revenue, followed by Malaysia (30%) and Singapore (28%).
- Malaysia: Revenue decreased significantly by 47.4% to RM79.8 million. This was mainly because several major projects are nearing completion, and newly secured projects are still in their early stages of recognition.
- Singapore: A modest increase of 7.72% in revenue, rising to RM75.9 million, driven by higher contributions from Advanced Engineering projects.
- China: A slight decrease of 2.9% to RM101.0 million, mainly due to timing differences in revenue recognition for ongoing projects, but overall project activities remain steady.
A Solid Financial Foundation
KGB’s balance sheet reflects a strong and healthy financial position, crucial for navigating future market conditions.
As at 31 March 2025
Total Equity: RM495.4 million
Total Debt: RM170.8 million
Net Cash: RM299.5 million
Debt-to-Equity (Gearing) Ratio: 0.34 times
As at 31 December 2024
Total Equity: RM473.3 million
Total Debt: RM185.3 million
Net Cash: RM227.8 million
Debt-to-Equity (Gearing) Ratio: 0.39 times
The increase in total equity was primarily driven by the exercise of warrants and quarterly profits. The reduction in total debt was mainly due to the settlement of project financing in China. This, coupled with strong project proceeds and funds from warrants exercise, significantly boosted the net cash balance, leading to an improved gearing ratio. These indicators highlight KGB’s financial discipline and liquidity.
Risks and Prospects: Navigating the Future
Looking ahead, KGB is cautiously optimistic, balancing global economic uncertainties with robust industry tailwinds.
Opportunities:
- Strong Order Book: The Group’s total order book stands at RM1.66 billion, with RM1.43 billion remaining outstanding, providing near-term revenue visibility.
- New Project Wins: Q1 2025 saw RM390 million in new contract wins, a significant increase from RM235 million in the same period last year, signaling strong underlying business activity.
- Global Semiconductor Boom: Demand from Artificial Intelligence (AI) applications and data centers continues to fuel the construction of semiconductor wafer fabrication plants worldwide. The recent revision of export restrictions on advanced AI chips by the US President is also expected to benefit the global semiconductor market.
- Malaysian Initiatives: The National Semiconductor Strategy (NSS) and the New Industrial Master Plan 2030 are set to accelerate semiconductor growth and attract foreign investment in Malaysia.
- Industrial Gas Growth: Demand for liquid carbon dioxide (LCO₂) remains steady, particularly from the food and beverage sector.
- Emerging CCUS Industry: The growing emphasis on sustainability and emissions reduction is accelerating the development of Carbon Capture, Utilisation, and Storage (CCUS), creating new long-term growth avenues for KGB.
- Market Expansion: KGB is actively broadening its market reach by tendering for projects in Europe, aligning with the sector’s global expansion.
Challenges:
- Global Economic Moderation: Global economic activity is anticipated to moderate, influenced by ongoing trade uncertainties and new tariff measures.
- Revenue Recognition Timing: As seen in this quarter, timing differences in project milestones can lead to fluctuations in reported revenue.
To mitigate these challenges, KGB emphasizes cost management and cash flow discipline. A healthy cash position further strengthens its ability to navigate any potential market slowdowns.
Shareholder Returns and Litigation Updates
KGB continues to demonstrate its commitment to shareholder returns. The Board declared a fourth interim tax-exempt dividend of 2 sen per ordinary share for FYE 2024, which was paid on April 11, 2025. Furthermore, a first interim tax-exempt dividend of 2.5 sen per ordinary share for FYE 2025 was declared on May 28, 2025, to be paid on July 10, 2025.
On the litigation front, KGB provided updates on two material cases:
- Hui Neng Mechanical & Electrical Engineering Co.: The High Court of Taiwan ordered Hui Neng to pay Kelington Taiwan approximately RM4.1 million plus interest. Hui Neng is appealing this decision, and the matter is ongoing.
- JCT Industries Group Sdn. Bhd.: Kelington Technologies Sdn. Bhd. (KTSB), a wholly-owned subsidiary, reached a settlement with JCT for RM4.3 million, payable in 11 installments. The arbitration proceedings have been withdrawn following the first installment payment. This marks a positive resolution for KTSB.
Summary and Outlook
Kelington Group Berhad’s First Quarter 2025 results paint a picture of strategic resilience. Despite a revenue dip driven by timing differences in project recognition, the Group delivered strong profitability, underpinned by improved gross profit margins and effective cost management. Its financial position remains robust, characterized by reduced debt, increased net cash, and an improved gearing ratio.
Looking ahead, KGB is well-positioned to capitalize on significant industry tailwinds, particularly in the growing global semiconductor sector driven by AI and data center demand, as well as the emerging Carbon Capture, Utilisation, and Storage (CCUS) industry. The substantial outstanding order book and increasing new project wins provide clear visibility for near-term growth. While global trade uncertainties present a cautious outlook, KGB’s proactive strategies in market broadening, cost control, and cash flow discipline are vital for sustained performance.
Key positive factors from this report include:
- Strong profit growth despite revenue decline, indicating margin strength and operational efficiency.
- Significant increase in net cash and improved gearing ratio, reflecting robust financial health.
- Substantial new contract wins and a healthy outstanding order book providing future revenue visibility.
- Strategic focus on high-value Advanced Engineering segment and exploration of new growth areas like CCUS.
- Commitment to shareholder returns through consistent dividend declarations.
The Group’s ability to maintain profitability and strengthen its balance sheet amidst a challenging external environment demonstrates its operational strength and strategic foresight. The focus on high-growth sectors and prudent financial management positions KGB to navigate future market conditions effectively.
What are your thoughts on KGB’s ability to capitalize on the growing semiconductor and sustainability sectors? Share your views in the comments below!
