Stock Pick: Kelington Group

Kenanga Research has maintained an “Outperform” recommendation for Kelington Group Bhd with an unchanged target price of RM2.50 on FY22E PER of 33x (+1SD to 3-year peer mean), justified by the group’s healthy job pipeline and secular growth story.

It said that the elevated demand for chips will persist. “Having observed the chip shortage scene for more than a year, we are convinced that the demand surge for semiconductors is not a temporary spike due to the pandemic but coming from a new wave of demand,” it said.

The research house said that the earnings transcripts from large wafer fab players have also said this shortage will likely continue for the next 2-3 years, which means that fab expansions will have to continue aggressively. “Hence, we remain positive on KGB’s prospects owing to its niche expertise which offers exposure to the front-end semiconductor space,” it said.

It said that similar to a previous customer which awarded all the packages for its new semiconductor fab in Singapore to KGB, “we expect this customer to likely have more packages in the pipeline given its commitment to invest more than US$150billion globally over the next decade to accelerate the manufacturing of memory chips used in mobile phones and personal computers.”

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