KUALA LUMPUR (March 23): Hong Leong Investment Bank (HLIB) Research has upgraded George Kent (Malaysia) Bhd to "hold" at 75.5 sen, with a higher target price (TP) of 74 sen (from 60 sen), and said the water services and infrastructure provider's results surprised on the upside.

In a note today, HLIB analyst Jeremy Goh said George Kent’s earnings for the financial year ended Jan 31, 2021 (FY21) of RM37 million accounted for 116% of his full-year forecast and were above his and consensus expectations.

“The results beat was mainly due to a faster-than-expected ramp-up in Light Rail Transit 3 (LRT3) contribution,” he added.

He said the group’s core profit after tax and minority interests declined, dragged by a weak construction contribution partially offset by its resilient metering division.

Goh increased his FY22 to FY23 earnings forecasts by 7.3% and 10.6% respectively for George Kent after adjusting for stronger joint-venture (JV) contribution and recalibrating margin assumptions.

On the construction segment, Goh estimated that George Kent’s outstanding order book (ex-LRT3) amounts to about RM160 million, which translates into a cover ratio of 1.1 times based on its FY21 construction revenue.

He said the segment’s revenue and profit before tax (PBT) (excluding JV and associates) declined by 34% and 40% respectively, owing to lockdowns and standard operating procedure (SOP) measures.

“Both its hospital projects are expected to end in 2021. The LRT3 JV's contribution finally picked up, having completed most of its supplemental contracts,” he added.

On manufacturing, he said, the group’s revenue and PBT increased by 10% and 54% respectively.

“Growth came largely on the back of resilient demand from the overseas and local markets as well as better margins owing to its sales mix, [and] lower material and overhead expenses,” he said.

At 9.54am today, George Kent had risen three sen or 3.97% to 78.5 sen, valuing the group at RM425.26 million.