Analysts from CGS-CIMB and SAC Capital have both maintained their “buy” calls on GKE Corp after a “good FY2021”.
SAC Capital’s Tracy Lim has raised her target price from 16.3 cents to 17.1 cents, while CGS- CIMB’s Ong Kang Chuen and Kenneth Tan maintained their target price of 21 cents.
GKE reported a record FY2021 ended 31 May, with net profit surging 145% y-o-y to hit $11.5 million. Dividend payout was reinstated for the first time since FY2016, at a distribution per share of 0.4 cents per share. This was higher than estimates from Tan and Ong , which forecasted a payout of 0.28 cents.
Ong and Tan also forecast China operations to see 60% growth in its profit before in FY2022 to $15.6 million.
They note that GKE’s ready-mix concrete (RMC) capacity will be effectively doubled to 1.6 million cubic per annum by end-1HFY2022.
See also: GKE Corp's FY21 earnings more than double to $11.5 mil, proposes 0.4 cent div
The production line added in Wuzhou City, Guangxi will come online in 1Q2021, and commencement of production in Cenxi city will start in 3Q2021.
“We believe this will allow GKE to better tap on the continued robust demand for construction materials there, as fixed asset investments in Wuzhou grew 25% y-o-y YTD,” Ong and Tan say.
Management also expects new initiatives, such as a construction waste material recycling plant and limestone mining to contribute positively from 2HFY22F onwards.
Back at home, they observe that GKE’s warehouse utilisation remains optimal due to stockpiling by customers, and rental rates trended higher thanks to further optimisation of GKE’s tenant mix.
In addition, GKE obtained Good Distribution Practices (GDP) certification for two of its warehouses, which allows for storage of pharmaceutical products.
Ong and Tan believe this could enhance its chances of renewing the government’s strategic stockpile contract by year-end, adding that GKE remains on the lookout for additional space.
“Looking into FY2022, we think that Singapore operations could see a 7% rise in profit before tax to $7.3 million. We believe that cost savings from lease renewal and acquisition of remaining 30% stake in Marquis Services could more than offset decline in government grants,” the analysts write.
Agreeing with the above, SAC’s Lim is optimistic on the warehousing segment, but is less so on the RMC operations in China.
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She has revised FY2022 and FY2023 revenue estimates down 5.9% and 8.8% to $127.6 million and $136.3 million respectively “on cautious optimism”, adding that China’s strengthening of commodity price controls could cap RMC sale prices. This translates to an overall 7.2%/6.8% y-o-y revenue growth.
“However, we remain optimistic on the stability of the warehousing logistics segment, and the growth potential of the infrastructural segment,” Lim notes.
As at 3.23pm, GKE traded at 14 cents, with a FY2022 price to book ratio of 1.13 and dividend yield of 3.18%.
