GKE Corp - CGS-CIMB Research 2022-07-28: Ready-Mix Concrete (RMC) Operations Remain Challenging In China

GKE Corp - Ready-Mix Concrete (RMC) Operations Remain Challenging

  • GKE Corp (SGX:595)’s 2HFY22 (1 Nov 2021 to 31 May 2022) net profit of S$0.9m (-77% h-o-h, -82% y-o-y) was below our expectations. 2HFY22 net profit of S$4.7m (-59% y-o-y) formed 69% of our forecast. The miss was mainly due to weaker-than-expected China operations, which were affected by
    1. lower ready-mix concrete (RMC) volumes due to a construction slowdown,
    2. resulting operating deleverage, and
    3. higher effective tax rate due to new business initiatives that have yet to contribute positively.
  • GKE proposed a final dividend of S$0.002, translating into a yield of 2%.
  • Revenue from Infrastructural materials segment further declined in 2HFY22 to S$11m (-41% h-o-h, -53% y-o-y), as GKE was affected by the housing market slump, China’s tight pandemic controls, and weaker seasonality from Chinese New Year. PBT margin decreased to 3.5% (vs. 2HFY21: 12.4%) due to operating deleverage, as well as start-up losses from the new Cenxi RMC plant which has yet to obtain the licence to commence operations. We expect a challenging operating environment in the near-term.
  • 2HFY22 revenue from warehousing and logistics segment rose 10% y-o-y to S$38.5m, driven by
    1. positive warehouse rental reversions, and
    2. 4-month contribution from Fair Chem acquisition.
  • We expect stronger segment PBT to rise 18% y-o-y in FY23F, especially helped by
    1. expanded DG (dangerous goods) storage capacity (conversion of yard space at 39 Benoi Road), which should start contributing 1HFY23, and
    2. full-year contribution from Fair Chem.
  • Re-iterate HOLD call on GKE. We cut our FY23-24F earnings per share (EPS) forecast for GKE by 20-24% due to China weakness, which eclipsed our raised estimates for Singapore operations. Our SOP-based target price for GKE remains at S$0.10, as the lowered valuation from China business (lower P/E multiple) was offset by Singapore’s strength.

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 2022-07-28
SGX Stock Analyst Report HOLD MAINTAIN HOLD 0.100 SAME 0.100

Previous report by CGS-CIMB:
2022-06-27 GKE Corp - Slowdown In China To Remain An Overhang

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