GKE Corporation - CGS-CIMB Research 2021-07-07: Wind At Its Back

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GKE CORPORATION LIMITED (SGX:595)

GKE Corporation - Wind At Its Back

• We see another strong showing in GKE’s upcoming FY21F (June 2020 to May 2021) results, with ~140% core net profit growth. Dividend payout could also be reinstated.
• China operations are benefiting from strong ready-mixed-concrete (RMC) volumes and pricing; Singapore is also enjoying optimal utilisation of warehousing space.
• We reiterate our ADD call on GKE with a higher target price of S$0.21.

GKE's FY21F preview: 140% core net profit growth

• We see another strong showing in GKE Corporation (SGX:595)’s upcoming results announcement in late-Jul, and estimate core net profit grew ~140% to S$11.3m. We believe there were twin drivers of growth, with China operations riding on high ready-mixed-concrete (RMC) volumes and pricing while Singapore operations benefited from robust performance in warehousing. Our core net profit excludes GKE’s disposal gain of ~S$1.5m (pre-tax) from subsidiary stake sale.
• With the forecast healthy financial performance, we now expect GKE to resume dividend payout (suspended since FY17). Assuming a dividend payout ratio of 20%, dividend amounts to S$0.0028 per share, representing dividend yield of 2.1%.

High RMC volume growth in China

• We believe GKE’s Wuzhou RMC enjoyed sturdy volumes in 2HFY21F, riding on
  1. its enlarged capacity of 50% (installed 1QCY21), and
  2. continued robust demand for construction materials.
• According to CEIC, fixed asset investments in Wuzhou year-to-date grew by 25% y-o-y, which we believe is in Cenxi City, China, where GKE set up a construction waste material recycling plant (24% stake) and its second RMC plant.

Warehousing demand in Singapore remains elevated

• GKE’s warehouse utilisation remains optimal due to stockpiling lease renewal (effective Apr 2021) helped PBT growth of GKE’s Singapore operations climb 212% y-o-y to S$5.6m in FY21F; we project 40% expansion in FY22F.

Reiterate ADD, with a higher target price of S$0.21

• We raise our GKE's FY21-23F earnings forecasts by 5.9-15.6% for higher RMC to S$0.21, implying 10.3x CY22F P/E.
• See
  • GKE Corp's Share Price,
  • GKE Corp's Target Price,
  • GKE Corp's Analyst Reports,
  • GKE Corp's Dividend History,
  • GKE Corp's Announcements,
  • GKE Corp's Latest News.
• Potential catalysts include further recovery in Singapore’s port container throughput and earnings-accretive M&A.
• Downside risks include a longer-than-expected path to profitability for GKE’s new growth initiatives.
• See report attached below for complete analysis.

ONG Khang Chuen CFA CGS-CIMB Research | Kenneth TAN CGS-CIMB Research | https://www.cgs-cimb.com 2021-07-07

SGX Stock Analyst Report ADD MAINTAIN ADD 0.21 UP 0.184