CGS-CIMB Research analysts Ong Kang Chuen and Kenenth Tan have maintained their “add” call and raised their target price for GKE Corp to 21 cents, up from their previous figure of 18.4 cents.
In a July 7 report, the analysts think that dividends from the company, suspended since FY2017, could resume, as they see another strong showing in GKE’s upcoming results announcement. They estimate core net profit will grow 140% to $11.3 million.
The forecast profit excludes GKE’s disposal gain of about $1.5 million (pre-tax) from a subsidiary stake sale.
The analysts see twin drivers of growth, with China operations riding on high ready-mixed-concrete (RMC) volumes and pricing while Singapore operations benefit from robust performance in warehousing.
“With the forecast healthy financial performance, we now expect GKE to resume dividend payout. Assuming a dividend payout ratio of 20%, distribution per share (DPS) amounts to 0.28 cents, representing dividend yield of 2.1%.”
Elaborating in the report, they believe that GKE’s RMC plant in Wuzhou, China enjoyed sturdy volumes in 2HFY2021, riding on its enlarged capacity of 50% (installed 1Q2021), and continued robust demand for construction materials.
According to CEIC, fixed asset investments in Wuzhou YTD grew by 25% yoy, which we believe is supportive of healthy construction activities there. We also see margin expansion, leveraging on high RMC prices and economies of scale.
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Overall, we estimate GKE’s China operations will record segment growth of 101% y-o-y to $14.5 million (profit before tax) in FY2021.
We project further earnings growth in FY2022, helped by contributions from new growth initiatives in Cenxi, China, where GKE set up a construction waste material recycling plant and its second RMC plant.
Back at home, Ong and Tan observe that GKE’s warehouse utilisation remains optimal, due to stockpiling by customers, and also believe GKE was able to enjoy elevated rental rates in 2HFY2021 through further optimisation of its tenant mix.
The analysts say industrial tailwinds persist, noting that the occupancy rates of industrial warehouses grew to 89.8% in 1Q2021 compared to 87.5% (1Q2020: 87.5%), according to JTC.
They say, “we estimate that continued strength in occupancy and cost savings from lease renewal (effective April 2021) will help GKE’s Singapore operations climb 212% y-o-y to $5.6 million (profit before tax) in FY2021; we project 40% expansion in FY2022.”
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As at 12.39pm, shares of GKE traded at 14 cents, with a FY2021 price to book ratio of 1.28 and dividend yield of 2.06%
