This article first appeared in The Edge Financial Daily on October 4, 2018

KUALA LUMPUR: Shares of little-known Kelington Group Bhd spiked 14.4% to close at an all-time high of RM1.19 yesterday on anticipation the US-China trade dispute would benefit the China-centric integrated engineering solutions provider which derives nearly half of its revenue from China.

Over the past fortnight, its share price had been on a continuous uptrend, breaching the RM1 level last week.

In fact, its share price has performed stellarly in the past few years; over the past year, it has risen by a massive 92.56% and over two years, quadrupled from a mere 28 sen.

The US-China trade spat, seen as negative for the global economy and most companies, could benefit Kelington, according to analysts.

Affin Hwang Investment Bank Bhd believes Kelington might potentially benefit from the on-going trade dispute.

Its analyst, Tan Jing Yuan, yesterday initiated coverage on the stock with a “buy” call and a target price of RM1.60.

This indicated the ongoing dispute could potentially accelerate the “Made in China 2025” masterplan whereby the Chinese government plans to increase domestic contents of core materials to 40%-70% by 2020/2025.

This necessitates the increased production of home-grown chips and less reliance on imported chips. As such, Kelington could see greater demand for its engineering solutions.

Tan said  semiconductors have been China’s biggest imports for the past decade. It buys about half of the world’s supply (approximately U$200 billion), but it produces only about 15% of the world’s supply, relying on the US, South Korea and Japan. He  said that interest in Kelington is driven by the semiconductor industry’s continued growth, huge China’s presence and the (perceived) benefits from the “Made in China 2025” masterplan.

Moreover, its long-term growth story seems compelling given the company’s expansion into the industrial gas market and solid balance sheet with net cash, as well as management network and strong technical background stemming from the years that senior management spent at Malaysian Oxygen Bhd.

In a Sept 3 note, Rakuten Trade Sdn Bhd said Kelington’s growth trajectory continued with its foray into industrial gas foray via a 15-year supply agreement with Petroliam Nasional Bhd to buy carbon dioxide gas for its new plant in Kerteh, Terengganu.

 When contacted by The Edge Financial Daily, Rakuten Trade vice president Vincent Lau said the research house is in the midst of upgrading its target price as its RM1.06 target price has been surpassed.

Kelington’s share price run-up could also be the result of institutional interest as at July 2018, about 19% of the company was owned by institutional funds compared to less than 5% at the end of 2017. Kelington  is presently valued at RM302.44 million.

Raymond Gan – its founder, chief executive officer and chairman - and chief operating officer Steven Ong Weng Leong are the company’s largest shareholders, owning 38% via their investment holding vehicle, Palace Star Sdn Bhd.