KUALA LUMPUR: Kelington Group Bhd (KGB) is poised to record stellar performance for its second quarter (Q2) driven by stronger project recognition in Singapore, Malaysia and China.
RHB Research stated in note that despite being a seasonal lull, Kelington's Q1 revenue was the highest ever achieved for the same quarter which was up by 65 per cent year-on-year (YoY), while core earnings surged 45 per cent.
"This was fuelled by a more than doubling of general contracting (GC) revenue, mainly from a chunky RM432 million turnkey job from a leading hard drive maker secured last September.
"We expect Q2 ore earnings, to be announced on August 15, to jump 18-30 per cent YoY on stronger project recognition in Singapore, Malaysia and China, as well as margins," said its analyst Jeffrey Tan.
Tan said the drawn-out Russian-Ukrainian conflict should see the chip shortage persist until 2024.
Kelington should continue to ride on the coattails of the fab capacity expansion globally, being a core engineering solutions provider with a leading share of the Singapore and China markets.
"China's zero-Covid policy has thus far not disrupted job orders with sufficient materials available on-site.
"We see the risk from rising material costs being mitigated by shorter tender periods for ultra-high purity (UHP) projects where cost escalations are built into project cost at the outset," he said.
The firm lifted Kelington's financial year 2022 (FY22)-FY24 core earnings by two to 11 per cent after bumping up its orderbook replenishment assumptions by 11-38 per cent.
It maintained its "Buy" call on the stock with a target price to RM1.69.
"We continue to see Kelington as a strategic proxy to the structural expansion in wafer foundry capacity (front-end), arising from the tight supply situation.
"Key risks are lower-than-expected margins, faster-than-expected normalisation of the demand-supply imbalance in the chip sector, and weaker orderbook replenishment," added Tan.