Although Kelington Group Bhd's robust double-digit earnings growth for the first nine months of 2023 has prompted RHB Investment Bank Bhd (RHB Research) to maintain a positive outlook on the stock and upheld the research house BUY recommendation with a target price of RM3.90, Kelington's outlook moving forward hinges on potential earnings shortfalls and challenges in replenishing its order book.

Nevertheless, RHB Research said the group's valuation remains attractive at 18 times its forecasted 2025 earnings per share and this assessment reflects Kelington's solid order book of over RM1.4 billion, bolstered by its growing industrial gas (IG) business, which is now its second-largest revenue source after the ultra-high purity (UHP) segment.

RHB Research noted that Kelington's third-quarter gross profit margin rose to a quarterly high of 22.8%, driven by the IG segment, whose contribution increased from 11% to 13% quarter-on-quarter. Kelington declared a third interim dividend of two sen, bringing the total for the first nine months to six sen, reflecting a dividend payout ratio of 42%.

The research house said with Kelington's current order flow and strategic focus on high-growth sectors, the group is well-positioned to capitalise on its strengths in UHP and IG, ensuring sustainable growth in an increasingly competitive market.