Sunday, 13 July 2014

Stock Pick for Midterm --- KGB

Summary for Kelington Group Berhad (KGB 0151)
Background (From Bloomberg Businessweek)

 Kelington Group Berhad provides engineering solutions for ultra high purity (UHP) gas and chemical delivery systems in Malaysia, Singapore, Taiwan, the People’s Republic of China, and others. The company provides design and modeling services, such as site analysis, feasibility studies, budget planning, conceptual design, capacity analysis, and pre-commissioning, commissioning, and start up services; fabrication and installation services; quality testing and certification services; and control and instrumentation services. It also offers maintenance and servicing services, including replacement of faulty gas or chemical delivery system components, modification or conversion of applicable equipment, installation of additional distribution points in a gas or chemical delivery system, and programmable logic controller program medication for equipment, such as gas cabinets, VMB/VMP, and abatement systems. In addition, the company engages in the trading of machinery equipment and related parts and components. Kelington Group Berhad serves electronic, wafer fabrication, photovoltaic, TFT-LCD/LED, medical substrate/PCB, pharmaceutical and biotechnology, and medical and healthcare industries, as well as R&D laboratories and government services. The company was formerly known as Kelington Engineering Sdn Bhd and changed its name to Kelington Group Berhad in September 2008. Kelington Group Berhad was founded in 1999 and is headquartered in Shah Alam, Malaysia.

Extracted From The Edge

1. KGB pre-tax profit for the first quarter ended March 31, 2014 more than doubled to RM2.37 million, from RM997,000 recorded in the same period last year. Revenue jumped to RM53.07 million, from RM24.02 million previously. The company attributed the better performance to higher revenue contribution from its overseas operations.

Revenue from China increased by 481.84 % to RM35.76 million, while revenue from Malaysia rose 3.39 % to RM12.22 million. Moving forward, the group said it was committed to secure new orders to replenish its order book, whereby since the beginning of the year, it secured new orders totalling RM63.72 million as at March 31 this year. “We are optimistic of achieving satisfactory performance for the financial year ending Dec 31, 2014, as we have an order book of RM227.97 million of which RM174.90 million remains outstanding as at March 31.’’ It said.

2. Initiating coverage with buy call and target price of 55 sen. The group is back in business with its strong earnings rebound this year backed by the promising outlook for the semiconductor and healthcare industries. KGB is a provider of ultra-high purity (UPH) gas and chemical delivery solutions in the region. Its strong presence overseas has helped them to secure sizeable contracts in competitive markets such as China, Taiwan and Singapore.
The group posted a dismal performance in FY 13 as its profit had slumped 72.1% y-o-y. But it made an impressive recovery in its first quarter ended 1qFY14 by posting net profit of RM2.1 million, a whopping jump of 156.5% y-o-y (against 1qFY13’s RM0.8 million) and 700% q-o-q (against 4QFY13’s RM0.01 million).
Based on its current outstanding order book of RM188 milion and maintenance works which render yearly, the group is expected to make a strong comeback in FY14 with us forecasting a net profit of RM8.6 million (+400% y-o-y), 2015FY net profit of RM10.8 million (+26& y-o-y).
The healthcare sector currently contributes about 72% to the group’s order book values while semiconductor industry contributes about 14%. The recovery in the global semiconductor industry augurs well for Kelington as the group will be able to secure more contracts in relation to the industry’s rising capital expenditure.
Kelington has been consistently rewarding its shareholder since its listing in 2009 and expect the group to resume its generous dividend payment of two sen for FY14 and 2.5 sen for FY15 or equivalent to 50% dividend payout, which translate into an attractive dividend yield of 4.9% and 6.1%, respectively.

From Bloomberg Terminal

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Technical Analysis

The recovery of semiconductor industry has been an added value for KGBin expanding its order book value and main revenue contributor, healthcare is a recession proof industry which it wouldn’t affect the  revenue drastically. The expanding healthcare industry is due to the increasing wealth of people, thus, it demand for higher quality services, which pretty much help the revenue of KGB increasing steadily.
Short term Target Price: RM0.45
Midterm Target Price: RM 0.55
Cut loss : RM 0.385
Dividend Payout ratio    50%

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