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

GKE CORPORATION LIMITED (SGX:595) | SGinvestors.io 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






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



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