Kelington Poised For Share Price Re-Rating After Major European Win
The upgrade follows Kelington's receipt of a Letter of Intent for a maiden semiconductor hook-up contract in Dresden, Germany, worth up to €50 million (RM244 million). According to RHB Research, this marks the group's first foothold in Europe and is expected to catalyse further share price re-rating, supported by the improving risk-reward profile in the global chip sector.
It added that new order wins could surpass the FY2022 record, with the latest European contract pushing year-to-date wins to about RM800 million against RM390 million in the first quarter.
The Letter of Intent covers pricing structures and adjustment clauses effective until 2027, paving the way for a full contract with Kelington's existing European client. The initial phase of the project is valued at a minimum of €30 million (RM146 million), potentially rising to €50 million over two years, with further opportunities beyond that. RHB Research said the development is significant as part of Kelington's RM2.5 billion European tender book as of end-May.
Looking ahead, the firm expects more positive news flow as additional tender results emerge by the third and fourth quarters, potentially lifting FY2025 order replenishments beyond the RM1.1 billion recorded in FY2024 and its earlier RM1.26 billion estimate. It has raised its FY2025 order book replenishment forecast to RM1.8 billion, leaving FY2026 and FY2027 projections unchanged. This adjustment increases core earnings forecasts by 11%, 12.7% and 4.5% for FY2025-2027, respectively.
Among pending bids are a joint venture involving Taiwan's largest foundry for a new German fabrication plant valued at RM1.5 billion and a RM292 million fab tender in India. The company's tender book of over RM5 billion should sustain operations well into FY2027, the research house noted.
For the upcoming second-quarter results due on 21 August, RHB Research expects Kelington to outperform its own and market estimates, forecasting revenue growth of 20%-25% quarter-on-quarter and core profit after tax and minority interest in the RM30 million to RM34 million range, up from RM26.6 million in the first quarter. Advanced engineering remains the main growth driver, contributing significantly to Kelington's RM1.43 billion outstanding order book as at March.
Meanwhile, its industrial gas segment is projected to deliver a 23% revenue compound annual growth rate for FY2025-FY2027, supported by higher liquid carbon dioxide demand and a new on-site gas supply deal with an opto-electronics client in Kedah.
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