GKE Corp - Slowdown In China To Remain An Overhang
- We expect GKE Corp (SGX:595)’s ready-mix concrete (RMC) operations to remain suppressed by weak sentiment in China’s property sector. We believe developers may have slowed down project executions in Wuzhou in 2HFY22F (Dec 2021 to May 2022) given near-term tight liquidity in the construction sector. As such, we see weaker-than-expected volume sales from GKE’s RMC plant in Wuzhou.
- In addition, we believe slow government approvals have delayed the commencement of GKE’s new RMC and waste recycling plants in Cenxi. Accordingly, we lower our FY22-24F infrastructural logistics PBT by 24-42%.
- Positively, GKE's Singapore logistics segment continues to perform well. We believe GKE’s warehouses remained fully utilised in 2HFY22F following favourable industry trends. We estimate GKE’s 2HFY22F logistics revenue was further boosted by contribution from specialty chemicals subsidiary Fair Chem, which was acquired on 28 Jan 22; we see potential cross-selling synergies from the acquisition (e.g. cross-pollination of customers) in the medium term.
- We believe GKE’s 2HFY22F net profit was weaker both h-o-h and y-o-y due largely to a sluggish RMC market in China as well as delayed commencement of its new initiatives (both in Singapore and China). With our new assumptions, our FY22-24F earnings per share (EPS) forecast is reduced by 19-29%, bringing our FY22F net profit forecast to S$6.8m (-41% y-o-y).
- We cut our full-year dividend estimate for GKE to S$0.002, assuming a dividend payout ratio of 25% and indicating FY22F dividend yield of ~2%.
- We downgrade GKE to HOLD due to near-term weakness for its China operations. Our SOP-based target price for GKE is lowered to S$0.10.
Above is the excerpt from research report by CGS-CIMB.
Clients of CGS-CIMB may access the full report in PDF @ https://www.itradecimb.com.sg/.
Kenneth TAN CGS-CIMB Research | ONG Khang Chuen CFA CGS-CIMB Research | https://www.cgs-cimb.com 2022-06-27 2022-06-27
Read also CGS-CIMB's most recent report:
2023-01-17 GKE Corp - Worst Likely Over But Bumpy Recovery Ahead.
Previous report by CGS-CIMB:
2022-07-28 GKE Corp - Ready-Mix Concrete (RMC) Operations Remain Challenging In China.