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Kelington still cheap despite recent rally, says Kenanga

KUALA LUMPUR: Kenanga Investment Bank research believes Kelington Group Bhd remains cheaply valued despite a 28% rally over the past one week due to the recent focus on the dry ice business.

The research house, which has an "outperform" recommendation on the stock said the stock is still cheap at FY21 price-earnings of 19.9x versus peers' average of 30-58x.

Kelington last traded at RM1.62 on Friday while Kenanga has kept its target price of RM1.92 on the counter.

"The group has been working with pharmaceutical companies since 2-3 months back to understand the requirements of using dry ice to store Covid-19 vaccines.

"Apart from supplying their own dry ice, other dry ice manufacturer in Malaysia also have to source liquid CO2 from KGB, as there are only two players locally (Linde and KGB) due to the high barrier of entry," it said.

According to Kenanga, LCO2 is a lucrative business with gross profit margin of over 30%, more than double its ultra-high purity gas delivery system margins.

Meanwhile, Semiconductor Manufacturing International Corp (SMIC) has hinted of more job awards to Kelington due to an imminent wafer shortage, said Kelington in a conference call with Kenanga.

SMIC recently reported 123% YoY jump in profit on 33% increase in revenue for 3QCY20, marking a new high.

SMIC’s current utilisation rate is at 100% and it is guiding momentum to remain strong going into 1H 2021.

Kenanga maintained its earnings forecast on Kelington with a FY21 profit after tax of RM26mil, which exceeds market expectations of RM17.9mil.


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