Kelington Group to Journey on Semiconductor Growth
KELINGTON Group Bhd (KGB) has been offering ultra-high purity (UHP) gasoline distribution options to the electronics and semiconductor business since its inception in 2000.
Though it has diversified its actions through the years into course of engineering (PE) and basic building (GC), whereas step by step increasing its buyer base to incorporate non-semiconductor clients, the UHP enterprise stays its most important focus. bread and butter.
About two years in the past, KGB ventured into the commercial and specialty gasoline enterprise, estimated to be value RM1.4-1.5 billion within the Malaysian market alone. The phase ought to now grow to be the group’s new development engine.
“As a bunch, our whole order backlog (for all firms) has grown at a compound annual development fee (CAGR) of 15% to 18% over the previous 5 years. Since semiconductors are on the rise and we’re aggressively increasing into the commercial gases sector, I consider we must always have the ability to preserve our development momentum over the subsequent two years, ”mentioned Raymond Gan Hung Keng, Founding CEO of the KGB. Edge in a digital interview.
KGB was listed on the ACE market of Bursa Malaysia in 2009, earlier than migrating to the primary market in 2012. At the moment, the group has operations and places of work in Malaysia, Singapore, China and Taiwan.
Gan, 57, is a serious KGB shareholder with a 21.75% stake, of which 21.02% is held via Palace Star Sdn Bhd, a personal car co-owned by him, Steven Ong Weng Leong and some different companions.
Ong, 53, is an government director and chief working officer of the KGB. Based on him, the group is on the verge of driving the semiconductor increase as a result of there isn’t any signal of slowing spending or growth of multinationals (MNCs), regardless of the uncertainties brought on by the Covid pandemic. 19 and the US-China commerce warfare. .
“Semiconductor gamers will at all times be our most important clients. What we love about semiconductors is that the business has to proceed to develop because the know-how evolves. This isn’t the everyday manufacturing business the place you construct a manufacturing facility and it might take 20 years. For semiconductor firms, they should preserve investing in new wafer manufacturing vegetation, which suggests extra initiatives for us. It is like an business that is at all times booming as a result of we’re nonetheless chasing them, ”says Ong.
The UHP enterprise represents roughly 60% to 70% of the overall turnover of the KGB, a further 20% of the PE phase and the remaining 10% of GC.
“Our PE division primarily designs and builds mechanical and electrical methods that assist industrial processes in numerous industries, whereas our GC division is supporting clients with our full vary of contract and building administration providers. We construct giant and small scale factories for petrochemical and oleochemical firms. We additionally do civil engineering and building work for them, ”says Ong.
Serving high-end clients
Coming again to the UHP enterprise, KGB primarily serves high-end clients together with wafer producers, TFT LCD readers, in addition to photovoltaic (PV) photo voltaic cell producers. These clients are situated upstream of the semiconductor worth chain as a result of they manufacture built-in circuits (ICs) or chips, which is capital intensive.
Gan says semiconductor firms making wafers and chips should function in an ultra-clean setting as a result of mud and particles can brief circuit built-in circuits.
“They want a system of ultra-clean gases and chemical compounds to run into their machines, in order that there isn’t any contamination whereas they’re making wafers and reducing their chips. When there’s a defect of their chips, their manufacturing effectivity shall be affected. That is why wafer factories have to ensure the gasoline and chemical traces are tremendous clear, ”he explains.
There are solely three wafer producers in Malaysia particularly SilTerra Malaysia Sdn Bhd, Infineon Applied sciences and X-Fab.
“At the moment, a lot of the giant wafer manufacturing vegetation are in Taiwan and China, adopted by Singapore, South Korea and Japan. Our main clients embrace Semiconductor Manufacturing Worldwide Corp (SMIC) of China, Taiwan Semiconductor Manufacturing Co (TSMC), Infineon, Seagate and Micron in Singapore, ”says Gan, including that the group established its business presence in China in the past. 18 years outdated and has a robust buyer base there.
“In December of final 12 months alone, we had been nonetheless getting new orders from these multinationals, together with the SMIC, which not too long ago requested us to hurry up as a lot as potential. However one factor to notice is that we’re not solely depending on the minimal wage, though it’s our largest buyer in the mean time, ”Gan emphasizes.
“Happily, we reviewed all of their 4 (SMIC) initiatives in China final 12 months. With our observe report, we’re assured we’ll obtain the identical this 12 months, ”he mentioned.
In the meantime, Micron and GlobalFoundries are additionally reportedly increasing their wafer manufacturing capability in Singapore, which is sweet information for the KGB, observes Gan.
“TSMC is definitely our oblique buyer, however our publicity to clients and the Taiwanese market remains to be comparatively low,” he provides.
KGB’s most important rivals within the UHP sector are PNC Course of Techniques Co Ltd, listed in Shanghai, Shanghai GenTech Co Ltd, Kinetics from the USA and Marketech from Taiwan.
Gan acknowledges that the big multinational semiconductor firms are at present nonetheless cautious about spending, however he believes that when the pandemic is over, they may make investments closely and increase aggressively.
“We anticipate the business to proceed to cycle via the subsequent one to 2 years. Regardless of the worldwide chip scarcity and regardless of the consequence of the commerce warfare, we consider the KGB will at all times be a beneficiary of the worldwide semiconductor pattern. Will probably be a busy 12 months for us, ”he says confidently.
New development engine
Going ahead, the commercial and specialty gases enterprise is predicted to be one of many KGB’s most important development drivers.
“Our publicity to this market phase will most likely be round RM20 million this 12 months, which could be very low when you take a look at the Malaysian market dimension of RM1.4-1.5 billion, however it additionally means a Enormous room for development for us, ”Gan mentioned optimistically.
Within the industrial gasoline sector, KGB’s most important competitor is The Linde Group. The area of interest of the KGB is liquid carbon dioxide (CO), which is extensively used within the meals and beverage (F&B) business, together with carbonated drinks. Ong says the group’s plant in Kerteh, Terengganu, can produce round 50,000 tonnes of liquid CO per 12 months.
“We take the waste gasoline immediately from the Petronas gasoline processing plant and convert it into our merchandise. At the moment, we’re working at a 50% utilization fee. We’ll develop after we attain full capability, ”he says.
In addition to F&B gamers, KGB additionally sells its CO merchandise to bottle refills, which resells them to building firms for welding.
As well as, KGB operates a dry ice manufacturing facility in Bukit Jelutong, Shah Alam. Dry ice is actually liquid CO which is solidified and pressed into the type of ice.
“We serve airways corresponding to AirAsia and Malindo, in addition to in-flight catering Brahim’s, that are hit exhausting by the pandemic. We now primarily serve ice cream parlors, together with Baskin-Robbins, and funeral houses, ”reveals Ong.
For this exercise, the KGB’s most important market is Malaysia, adopted by Singapore.
“We nonetheless must increase into China and Taiwan. Sooner or later, we could possibly serve durian companies, in addition to poultry and seafood companies, ”notes Ong.
Yr-to-date, KGB shares have gained 35% to shut at RM 2.28 final Wednesday, leading to a market cap of RM 732.8 million.
Commenting on the robust efficiency of the share value, Gan says it displays the boldness of traders who consider within the KGB’s development story.
“Should you consider us as a high-tech firm, our price-to-earnings ratio (PER) remains to be fairly low. Among the gamers supporting semiconductors are at present buying and selling round 60 occasions. We’re nonetheless at 30 occasions (on the time of the interview). We hope that traders will re-evaluate us as a high-tech firm and never as a buying and selling and repair firm, ”he mentioned.
Based on Bloomberg, the meter is at present buying and selling at a historic PER of 39.9 occasions.
The KGB noticed its web revenue decline 29.9% to RM17.11 million within the fiscal 12 months ended December 31, 2020 (FY2020), because the group incurred “unavoidable direct prices” and confronted a “Longer undertaking schedule” as a consequence of further normal operation. procedures in all key markets.
On its steadiness sheet, KGB stays wholesome in a web money place of RM 73.6 million with whole gross money of RM 132.0 million, exceeding its whole debt of RM 58.3 million as of December 31, 2020 .