Friday 29 Mar 2024
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This article first appeared in The Edge Financial Daily on June 27, 2019

George Kent (Malaysia) Bhd
(June 26, RM1.10)
Maintain market perform with an unchanged target price (TP) of RM1.15:
George Kent (Malaysia) Bhd’s first quarter of 2020 (1QFY20) core net profit (CNP) of RM13.5 million makes up 16% 19% of our and consensus full-year estimates. We deem that its results to be within expectations as GKent’s results are generally weaker in first half, coupled that light rail transit 3 (LRT3) work progress has yet to pick up in pace. No dividends declared as expected.

 

1QFY20 CNP fell 28% year-on-year attributable to (i) decrease in revenue (-17%), (ii) losses contribution from its associate & joint venture contribution, (iii) higher effective tax rate of 25% (+9ppt). The decline in revenue was due to the decline in billings for its construction division coupled with slower sales in its metering division. The losses in associate contribution were due to the project cost review on LRT3, which resulted in a temporary halt in work progress for that project. Quarter-on-quarter (q-o-q), its 1QFY20 CNP decreased by 29% due to similar reasons above except that it recorded lower effective tax in 1QFY20 of 25% (-25ppt).

For LRT3, we believe that the current progress is still at around 10%, but management remains optimistic about meeting the construction timeline as it has been rescheduled to 2024. As for its metering division, management is doubling its effort in promoting the smart metering solutions to various state governments and countries within the Southeast Asia region. Its smart meters are an add-on to existing meters that offers fixed network reading or mobile network reading allowing water players to bill customers effortlessly and we have built the potential into our estimates.

Post results, no changes to financial years 2020 to 2021 (FY20-21E) earnings.

We maintain our “market perform” call with an unchanged TP of RM1.15. We believe that its outlook is improving but still highly dependent on the execution of LRT3. Our TP implies FY20E price-to-earnings ratio of 7.8 times, which is in line with our ascribed multiple of 6.0-11.0 times within the construction space. Risks for our call are (i) higher lower-than-expected margins, and (ii) ahead of schedule delay in construction works. — Kenanga Research, June 26

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