KUALA LUMPUR (Nov 11): Pharmaceutical company Pfizer’s announcement on a viable Covid-19 vaccine candidate bodes well for many players in the market, including Kelington Group Bhd (KGB), which may benefit from a subsequent boost in the demand for dry ice.
With a vaccine candidate in the works, dry ice is now experiencing a rise in demand from pharmaceutical companies working on the vaccine, as well as increased usage for food delivery service, NBC News reported.
“Coincidentally, KGB has a dry ice plant located in Shah Alam, positioning them well to benefit from this demand surge,” Kenanga research analyst Samuel Tan wrote in a note today.
More importantly, the availability of a vaccine paves the way for a full economy re-opening, which also facilitates KGB’s ultra high purity (UHP) installation works segment, said Tan. The group mainly provides UHP gas delivery solutions to the electronics and semiconductor industry.
Kenanga maintained its 'outperform' rating on the stock with an unchanged target price of RM1.92.
“Currently, KGB’s outstanding orderbook has piled up to a record high of RM386 million versus RM258 million at end of FY19. This means that, as the economy reopens, there is a huge backlog of jobs for KGB to deliver. In fact, KGB has already been resuming operations in Malaysia, Taiwan and China, while Singapore operations are back to 75% from 30% earlier,” he noted.
Tan notes that KGB’s earnings potential in FY21 is currently being underestimated by the market, but he believes that it is poised for a strong earnings recovery backed by record-high orderbook, imminent water shortages thus requiring further expansions, as well as China’s semiconductor localisation efforts.
“To put things into perspective, KGB already achieved profit after tax (PAT) of RM24.4 million in FY19 even with about RM1 million start-up losses for its liquid CO2 plant and about RM2 million idling losses at Taiwan division.
"For FY21, we forecast the liquid CO2 plant to start generating RM3-RM4 million profit, while Taiwan also swings into profit of RM2 million. With its all-time high orderbook, we believe we too are still being conservative with our FY21 PAT of RM26 million,” said Tan.
At the time of writing, Kelington shares were up 11 sen or 8.09% at RM1.47, for a market capitalisation of RM474.26 million.