KUALA LUMPUR (Aug 6): Analysts are seeing further legs for the share price of Kelington Group Bhd (KL:KGB) on valuation expansion, as rising chip demand grows expectations of a seasonally strong second quarter.

The bullish outlook comes as memory chip foundries continue to aggressively push for capex spending, due to chip demand continuing to far outpace global supply. 

Kelington specialises in the production of industrial gases vital to the semiconductor and chip industry.

“From our channel checks and discussions, key foundries (Kelington’s principal customers) have pre-sold capacities one-two years ahead of actual builds, a testament of the strong multi-year artificial intelligence (AI)-led demand expansion,” said an analyst from RHB Research.

RHB has accordingly maintained their “buy” rating on the stock with a raised target price of RM10.50 from RM9.10 a share, based on an earnings per share ratio of 35 times for the financial year 2027.

While the group’s profit after tax and minority interests (Patami) for 2Q2026 will only be announced by Aug 20, RHB predicts it to grow 32-48% on a quarter-to-quarter basis to RM40 million-RM45 million.

“Given KGB’s strong net cash balance sheet, we see upside risks to dividends,” the house further said. An increased dividend per share of 16 sen for 2026 was correspondingly projected, albeit with a reduced payout ratio of 70% compared to 85% in the first quarter of the year.

At time of writing, Kelington’s shares fell six sen or 0.69% to RM 8.69 a share, as more than 99,000 shares changed hands. The company is currently valued at an estimated RM7.67 billion.

Japan’s focus on reviving its domestic semiconductor industry has also attracted many of Kelington’s clients, with firms such as Micron Technology and Taiwan Semiconductor Manufacturing Company beginning shipments and production within the next three years.

“We see the Japanese market as a natural extension of Kelington’s expanding geographical reach, as it rides on the coattails of its customer’s own expansion opportunities,” RHB reported.