PETALING JAYA: RHB Research sees a strong start to the year for Kelington Group Bhd, with a tender book above RM2 billion, continuing strong off-takes at its liquid carbon dioxide (LCO2) plant, and robust growth of its ultra-high purity (UHP) segment.
The bank-backed research firm said the company’s FY24 order wins should surpass those of FY23, and FY25 is likely to be another formidable year for Kelington.
“We see a seasonally stronger Q4 2024 with FY24 PATAMI likely up 20-30% YoY to a record high.
“Kelington’s focus on profitability alongside the shift in product mix (higher margin UHP jobs and the ramp-up in the industrial gas business) should see net profit margin improving to 8-9% in FY24 vs 6.5% in FY23.
“With a healthy orderbook estimated at above RM1 billion in December 2024 and above RM2 billion in tenderbook, 2025 is shaping to be another stellar year.
“We project FY24 dividend-per-share (DPS) at 6 sen, with about 30% in dividend payout ratio (DPR) with 1H DPR at 52%,“ the research firm said in a note.
Further, RHB Research also noted that 2024 order wins should surpass the RM1.3 billion posted in FY23, with the additional UHP jobs inked in Q4 2024 from Singapore.
The research firm said notable projects in the island state include the US$7.8 billion (RM34.8 billion) 12-inch fab by Vanguard (an affiliate of Taiwan Semiconductor Manufacturing (TSMC) and a high-bandwidth memory (HBM) facility by a major US-based memory producer that broke ground in January.
“We believe Kelington stands a good chance of securing its maiden UHP job in Europe, with tender outcomes likely to be known by mid-year.
“Projects vied for include a new fab in Dresden, Germany (JV between TSMC and NXP Semiconductors) potentially valued at RM900 million and fabs to be constructed by Infineon and Siltronic.
“As of Q3 2024, Singapore UHP projects made up the second-largest portion of Kelington’s tender book after Germany at RM517 million (approximately 20% of the tender book),“ RHB Research said.
Further, the research firm also noted that Kelington stands to benefit from China’s ongoing technology rivalry with the US.
It said as the Sino-US trade dispute intensifies, China is ramping up efforts to achieve self-sufficiency in semiconductors through significant domestic investments.
The recent news of DeepSeek’s AI models being delivered at substantially lower costs further underscores this trend.
RHB Research said that Kelington’s long-standing relationship with China’s largest chipmaker and foundry positions it well to secure additional UHP jobs as these manufacturers expand their operations.
According to the latest SEMI World Fab Forecast report, China will build three new semiconductor fabrication plants (fabs) in 2025, accounting for a significant share of the 18 new fabs planned globally.
Two of these fabs belong to Kelington’s existing customers, presenting strong business opportunities.
However, potential risks include weaker-than-expected orderbook replenishment, margin pressures, and shifts in the broader technology landscape that could impact future demand.
RHB Research reiterates a “buy” call on Kelington, with a target price of RM4.12, a 20% upside, and a 2% FY25 yield.
