Kelington to ride on semiconductor sector upcycle


RHB Research expects double-digit year-on-year growth momentum in revenue and core earnings to continue for the company in the first quarter.

KUALA LUMPUR: Kelington Group Bhd stands to benefit from any new upcycle of the semiconductor industry.

RHB Research noted the two-year downcycle of the semiconductor industry is likely already at its tail end now.

As such, valuations for the sector could catch up to mean historical averages.

The research house noted Kelington’s shares now traded at an undemanding 20 times financial year 2025 (FY25) forecast earnings per share or a minus one standard deviation to the KL Technology Index’s five-year mean.

The company is also supported by an outstanding order book of RM1.3bil, it said.

“We expect double-digit year-on-year growth momentum in revenue and core earnings to continue for the company in the first quarter. It will be supported by the robust ultra-high purity (UHP) progress billings with some seasonal effects (higher base in the fourth quarter of FY23) from the Lunar New Year period,” the research house said.

“We expect gross profit margins to stay at mid-double digits as UHP projects continue to make up the lion’s share or close to three quarters of revenues.

“This is on top of the rapidly growing higher yielding industrial gas business with the second liquid carbon dioxide plant site of about 70,000 tonnes capacity coming on stream,” it added.

RHB Research maintained its “buy” call on the counter, raising its target price to RM3.35 from RM3.03 with a 1% forward dividend yield.

It noted sentiment towards the semiconductor sector should be supported with benefits to companies operating at the front-end of the supply chain such as wafer fabricators.

Meanwhile, it noted the recent doubling of tariffs on China semiconductor imports from 2025 may further strengthen Malaysia’s attractiveness as an alternative supply chain hub under the China Plus One strategy. This should augur well for the company, it said.

“Kelington’s timely expansion into Germany is also expected to gain traction amid the United States-China geopolitical tensions,” it added.

Kelington in December 2023 was upgraded to a four-star environmental, social and governance (ESG) rating.

This placed it in the top quartile for ESG performance among FBM EMAS stock constituents, it noted.

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