SAC Capital’s Lim Shu Rong has downgraded GKE Corp to “hold” from “buy”, together with a reduced target price of 12.3 cents from 17.1 cents previously, following the company’s 1HFY2022 earnings that missed expectations.
For the company’s six months ended Nov 2021, earnings dropped by 41.5% y-o-y, on the back of a 8.4% y-o-y dip in revenue to $55 million.
These numbers were 34% and 43% respectively of Lim’s projections.
The company’s earnings from its ready-mixed concrete dropped by a third in the 1HFY2022 period from lower government support, higher costs and some $0.9 million in credit allowances.
Nevertheless, GKE’s logistics business, based in Singapore, is still well-positioned to generate steady earnings, as customers require more space to stock up amid pandemic-caused supply chain worries.
To capture more business, GKE is converting some of its space to dedicated facilities qualified to store so-called dangerous goods. It is expanding via acquisitions too.
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Lim’s revised target price of 12.3 cents is based on a sum-of-the-parts valuation where the logistics businesses are valued at one time book value, while the concrete business in China is tied to 14.6 times earnings.
GKE traded at 11 cents as at 11.32 am
