PETALING JAYA: Kelington Group Bhd is on track for another bumper year supported by a milestone order book and a strong earnings narrative.

       In a recent report, RHB Research said it foresees a 40% increase in the group’s core earnings for financial year 2022 (FY22), with billings reaching another milestone. The group has over RM1.3bil of outstanding order book to-date, which includes hook-up jobs from China’s largest wafer fab for five sites.

       “Excluding this, the RM1.3bil tender book comprised of new hook-up jobs from Micron, Global Foundries, and Siltronics, for which base-build projects were secured in FY21,” said RHB Research.

       The research house added that Kelington was well placed to secure base build contracts for United Microelectronics Corp’s new US$5bil (RM20.97bil) 22/28 nanometre (nm) fab in Singapore when the tender opens.

       In Malaysia, key tenders include Intel’s new fab under the Intel-Pelican project in Bayan Lepas, Penang; Infineon’s expansion in Melaka and Kulim; Austria Technologie & Systemtechnik AG plant in Kulim and Silterra in Kulim.

       Kelington also noted that supply to the food and beverage industry has commenced although on a small scale. It is still in negotiations for long-term supply agreements.

       Nonetheless, management expects an uplift in plant utilisation to 80% this year compared to 60% in 2021, as the economic recovery gathers momentum.

       Kelington made an impressive showing for FY21, posting an 82% year-on-year increase in net profit to RM31.82mil compared to RM17.5mil in the previous year. Revenue rose to RM517.71mil from RM394.6mil previously.

       RHB Research has maintained its “buy” call on the stock with a target price of RM1.70.

       “We tone down FY22 by 5.2% after factoring in a slight delay in the RM420mil (30% of order book) turnkey general contracting job for a global data storage player in Sarawak due to a change in design specifications. FY23-FY24 core earnings are raised by 14% to 15% as we now assume higher order book replenishments,” it added.

       Key downside risks identified by the research house are weaker-than-expected earnings/order book replenishment, and faster-than-expected normalisation of demand-supply imbalance in the chip sector.