Kelington intends to continue the upcycling cycle in the semiconductor sector

KUALA LUMPUR: Kelington Group Bhd is expected to benefit from each new cycle of improvements in the semiconductor industry.

RHB Research noted that the two-year downturn in the semiconductor industry is likely coming to an end.

As a result, sector valuations may catch up with historical averages.

The research house noted that Kelington’s shares are currently trading at an undemanding 20 times forecast fiscal year 2025 (FY25) earnings per share, or minus one standard deviation from the five-year average of the KL Technology Index.

It said the company is also supported by an unfulfilled order backlog of RM1.3 billion.

“We expect that in the first quarter the company will maintain double-digit dynamics of growth in revenues and basic profits year on year. “This will be supported by solid ultra-high purity (UHP) progress billing, with some seasonal effects (higher base in Q4FY23) from the Lunar New Year period,” the research house said.

“We expect gross profit margins to remain in the mid-double digits as UHP projects continue to account for the lion’s share, or nearly three-quarters, of revenues.

“This is in addition to the rapidly growing, high-performance industrial gas industry, which will see the launch of a second liquid carbon dioxide plant with a capacity of approximately 70,000 tons,” he added.

RHB Research maintained its buy call, raising its price target to RM3.35 from RM3.03 ​​at a 1% forward dividend yield.

She noted that sentiment towards the semiconductor sector should be strengthened by benefits for companies operating at the beginning of the supply chain, such as semiconductor wafer makers.

Meanwhile, she noted that the recent doubling of tariffs on semiconductor imports from China from 2025 could further strengthen Malaysia’s attractiveness as an alternative supply chain hub under the China Plus One strategy. This should bode well for the company, he added.

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

Kelington achieved a four-star Environmental, Social and Governance (ESG) rating in December 2023.

It noted that this places it in the top quartile for ESG performance among FBM EMAS share companies.