KUALA LUMPUR (Aug 4): RHB Investment Bank has maintained its “neutral” rating on Kelington Group Bhd (KGB) at RM1.46 with a higher target price (TP) of RM1.51 (from RM1.44), and said it expects a good financial quarter ended June 30, 2023 (2QFY2023) for KGB.

In a note on Friday (Aug 4), the research house said this is supported by a strong order book of RM2.3 billion (end-April 2023), which translates into 1.8 times FY2022 revenue and year-to-date (up to April) order wins of RM568 million (about 30% of FY2022 new orders). 2QFY2023 revenue/core earnings could potentially see a double-digit expansion year-on-year.

“As the ultra high purity (UHP) segment makes up a larger proportion of order book (1QFY2023: 66%; 1QFY2022: 64%), we see incrementally stronger gross margins.

“We upped our FY2024-2025F (forecast) core earnings by 1.9%-2.9%, after tweaking our margin assumptions for the industrial gas segment,” it said.

RHB said this is backed by heightened demand from the Oceania markets and expectations of good incremental uplift in the utilisation for the P2 facility.

“Our TP is still premised on 18 times FY2024F P/E (price-to-earnings ratio), which is at +0.5 SD (standard deviation) of historical mean.

“We adjust KGB’s ESG (environmental, social, and corporate governance) score to 3.1 (from 3.0) to reflect improving governance and greater transparency accorded on its business activities.

“It is worth noting that KGB was awarded ‘The 2022 Edge ESG Award’,” it said.