CGS-CIMB Research has initiated coverage on Singapore-based integrated warehouse and logistics service provider with a target price of 18 cents as it sees strong potential in its earnings growth for FY2021F.
On this, Ong Khang Chuen and Kenneth Tan say they forecast a 93% y-o-y growth for the company’s net profit after tax (NPAT) in FY2021F, riding on Singapore’s enhanced medical supply stockpiling and China’s infrastructure boom.
This, they say, supports their forecast of a 21% y-o-y increase in revenue and operating profit margin (OPM) expansion to 11% from 8% in FY2020.
The way Ong and Tan see it, the company is enjoying heightened demand for warehouse space in Singapore in 2H2020 due to enhanced medical supply stockpiling.
According to GKE Corp’s management, its warehouses are currently running at maximum capacity, and the company is looking to optimise its customer base to focus on higher-yield tenants.
“We expect this to support its warehousing and logistics business, and project 69.7% y-o-y segment profit before tax (PBT) growth in FY2021F,” say Ong and Tan.
The analysts also see GKE Corp’s ready-mix concrete (RMC) plant located in China’s Wuzhou City as a beneficiary of the country’s infrastructure boom.
“We expect heightened construction activities to translate to stronger RMC demand, and forecast GKE’s infrastructure materials segment to see +50% y-o-y volume growth and 64% y-o-y growth in segment PBT in FY2021F,” they say.
Furthermore, the analysts expect GKE’s new initiatives – its 24% stake in a construction waste material recycling plant and an RMC plant in Cenxi City – to underpin the company’s 48.8% net profit compound annual growth rate (CAGR) in FY2020 to FY2023F.
Both plants are expected to commence operations in 1Q2021.
Shares in GKE Corp closed 0.6 cent lower or 4.3% down at 13.2 cents on Jan 7.
