KGB: Strategic Expansion and Robust Tender Book Drive Strong Outlook, Target Price Raised

A leading industrial solutions provider maintains a strong outlook following its 2Q25 results call, with analysts reiterating a “BUY” recommendation and raising the target price to RM5.55 from RM5.40, indicating a 15% upside. This optimistic view is underpinned by projected strong double-digit earnings growth for FY25-27, fueled by strategic expansion in advanced engineering and a substantial tender book.

Performance Review and Operational Highlights

The company continues to demonstrate resilience, particularly in its margin performance. Despite a 23% year-on-year decline in industrial gas revenue during 1H25 due to softer specialty gas sales, overall profitability was sustained. This was largely buffered by robust liquid carbon dioxide (LCO2) demand and effective average selling price (ASP) increases of 10-15% quarter-on-quarter. The latest earnings forecasts for FY25-27 have been adjusted slightly, with a minor -3% revision for FY25F, but positive adjustments of +0.7% and +6.7% for FY26F and FY27F respectively, primarily reflecting margin run-rates and an updated industrial gas business outlook.

Strategic Growth and Order Book Expansion

Driven by geopolitical shifts, the company is actively expanding its global footprint. Following its successful establishment in Europe, management is now setting its sights on Japan, engaging in discussions for hook-up works with government-backed semiconductor upstart Rapidus and existing customer Micron. Micron is constructing a new USD5bn 1-gamma dynamic random access memory (DRAM) plant in Hiroshima, slated for completion in 2027, while Rapidus targets commercial production of 2nm chips in the same year.

Further bolstering its pipeline, the company has secured a significant letter of intent (LOI) from a German chipmaker, accounting for 60% of total hook-up works, with initial project values potentially extending beyond five years through capacity upgrades. Excluding this LOI, the tender book stands at a robust RM4.5 billion, with RM1.3 billion in outstanding orders. New orders secured year-to-date amount to approximately RM800 million, putting the company on track to surpass FY24’s RM1.1 billion with key tender results anticipated by 4Q25. As of June 30, 2025, the total tender book stood at a record-high RM5.4 billion.

Long-Term Growth Initiatives

Beyond its core business, the company is poised to tap into the burgeoning carbon capture, utilisation, and storage (CCUS) sector. Its wholly-owned subsidiary, ACE Gases, is one of four companies chosen as key enablers for the national CCUS programme (2026-2030). Active collaboration with State Governments and the private sector is underway. Management is also exploring green hydrogen (H2) production for H2-powered buses in Kuching and from excess hydropower in Selangor, which could lead to multiple small-scale H2 plants generating potential earnings of RM1-2 million per plant. While these CCUS ventures are expected to contribute meaningfully in the longer term, they represent a new leg of growth for the company.