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Tuesday, April 18, 2017

KGB- will MADE IN CHINA lift their profit?


KELINGTON GROUP BERHAD.
PE ratio currently 15 times.
Dividend yield 1.8% after the proposed dividend today.

Why KGB?

See what the management said in the last quarter.....
During the 12 months period ended 31 December 2016, the Group had secured new orders amounting to RM323.44 million. This is the highest amount of new orders ever to be secured by the Group within a year.
Combined with the orders carried forward from the previous year, and new orders secured to-date in 2017, the Group has an orderbook on hand of RM546.99 million, of which RM206.76 million remains outstanding.

Under the current competitive business environment, the Group is focused on delivering the projects on a timely manner and is vigilant in managing costs.
Based on the Group’s orderbook level and barring unforeseen circumstances, the Group is confident that the Company will continue with the good performance in the coming year.

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BENEFITS FROM “MADE IN CHINA 2025” INITIATIVE.
“Under the Made in China 2025 initiative, China aims to become a superpower in the manufacturing of high technology industries by 2025. The China government is undergoing a significant capacity expansion growth and is expected to invest heavily to increase its production 
of memory chips and semiconductors.”
“According to industry reports, China aims to produce 70% of its total consumption of integrated circuits, from approximately 10% now. This augurs well for players like us as we aim to gain a  share of the capex expansion activities of these technology players,” he added further.

The Group is optimistic that it will be positively impacted by the expected capacity expansion growth in the China electronics market.

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Dividend.
Although growing, still paying RM0.01 dividend. Last year RM0.005

Expand to have recurring income.
KELINGTON SECURES FIRST INDUSTRIAL GAS SUPPLY CONTRACT.

Under the contract, Kelington will setup an onsite generator to produce nitrogen gas at the Hanwha Q CELLS’ manufacturing plant in Cyberjaya, Malaysia. In return, Hanwha Q CELLS will pay a fixed facility fee amounting to approximately RM20 million over a period of ten years.

Hanwha Q CELLS is one of the world’s largest manufacturers of solar cells and modules and uses nitrogen in its manufacturing process.

Ir. Raymond Gan, Chief Executive Officer of Kelington Group Berhad said, “Our expansion plan into a recurring long-term business is taking place as planned. This is our first industrial gas supply contract, marking our successful foray into this new area. This new business is long-term in nature and would add a stable and recurring income stream to the Group. It would enhance our earnings visibility, providing sustainable returns to our shareholders.”


See what Hong Leong said.....

 KGB was a leading Ultra-High Purity (UHP) Gas and Chemical Delivery Solutions Provider in Malaysia, China, Taiwan and Singapore. KGB is an integrated engineering solutions provider specializing in ultra-high purity (UHP) gas and chemical delivery systems, mechanical process engineering, mechanical systems and electrical systems. The Group provides end-to-end engineering solutions ranging from system design to fabrication and installation of equipment to testing and maintenance. 

Outstanding orderbook about RM277m. 
Yesterday, KGB announced that it has secured RM24m contract to Givaudan Singapore (a leading flavour and fragrances manufacturer). Together with the RM19m contract to a China global semiconductor MNC (secured on 3 Apr) and its first industrial gas supply contract of RM20m (secured on 28 Mar) to Hanwha Q CELLS (one of the world’s largest manufacturers of solar cells and modules), KGB’s has an outstanding orderbook of ~RM277m. 

Serving diversified industries. 
Established since 2000, the Group serves customers in the high technology industry across different sectors such as Industrial Gases, Wafer Fabrication, Solar Energy, TFT-LCT, Bioscience and Light Emitting Diode (LED). KGB has also expanded its industry focus to include the F&B, pharmaceutical, healthcare and oil and gas sectors. In FY2016, Singapore contributed 39% to the revenue, followed by Malaysia (38%), Taiwan (10%), China 98%) and other (5%). 

Potential downtrend reversal. 
KGB is currently trading at 8.3x FY16 P/E (7.1x if excludes 7.9 sen netcash). The stock has retraced from 52-week high of RM0.64 (5 Apr) to a low of RM0.53 (14 Apr) before ending at RM0.565, above the 30-d SMA level (now at RM0.545). Short term rebound seems taking shape and we expect prices to bottom up amid the formation of hammer-liked candlestick. 

A decisive breach above RM0.59 (10-d SMA) is likely to spur prices higher towards RM0.64 and our long term objective of RM0.70 (123.6% FR). Key supports are RM0.53-0.545. Cut loss at RM0.525. 

Source: Hong Leong Investment Bank Research - 18 Apr 2017

According to a blogger excelyou, some of KGB's major customers are growing.

Net cash about RM0.079

Although price has up 100%, it has dropped 16% from RM0.63 in April to RM0.53, but now has reserved and resumed uptrend. Can refer chart analysis by Hong Leong above.



Concerns.
For those who are concerned on the price, KGB up from RM0.30 in January 2017 to slightly less than RM0.60 now.

If their result not good, price will be under great pressure. 

The gas supply project is something new to them and may not be easy to execute.

I don't know how Hong Leong got the profit RM15.4 milion for 2016, from what I see from announcement is only RM8.7 million. Maybe they excluded certain one-off item.


If Hong Leong's figures stand, the buying interest for this stock will be high. Now hard to find a growing stock with less than PE ratio 10.

End.


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Dollar Cost Averaging and PEGGY Method. Sharing info on cheap (low PE) company with high growth, low Gearing or Net Cash and High Dividend Yield.

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