CGS-CIMB Research analysts Kenneth Tan and Ong Khang Chuen have downgraded GKE Corp to “hold” with a lower target price of 10 cents from their previous target of 16 cents, as the storage company’s ready-mix concrete (RMC) operations continue to be suppressed by weak sentiments in China’s property sector.
In addition, the analysts have reduced their earnings per share (EPS) estimates for the FY2022 to FY2024 by 19%-29%, bringing their net profit forecast for the FY2022 to $6.8 million, a y-o-y dip of 41%.
“We believe GKE’s 2HFY2022 net profit was weaker both h-o-h and y-o-y due largely to a sluggish RMC market in China as well as delayed commencement of its new initiatives — both in Singapore and China,” write the analysts.
“We cut our full-year distribution per share (DPS) estimate to 0.2 cents, assuming a dividend payout ratio of 25% and indicating FY2022 dividend yield of c.2%,” they add.
Looking ahead, the CGS-CIMB analysts expect tight restrictions to negatively impact China’s RMC market.
“We believe developers may have slowed down project executions in Wuzhou in 2HFY2022 given [the] near-term tight liquidity in the construction sector,” they write. “As such, we see weaker-than-expected volume sales from GKE’s RMC plant in Wuzhou.”
Positively, Singapore’s logistics segment continues to perform well, with the full utilisation of GKE’s warehouses in 2HFY22F reflecting favourable industry trends.
“We estimate GKE’s 2HFY2022 logistics revenue was further boosted by contribution from specialty chemicals subsidiary Fair Chem, which was acquired on Jan 28,” say the analysts. “We understand the group is still in the process of converting some of its yard space into higher-yield chemical storage areas, which we now expect to only commence contribution in 1HFY2023.”
As at 2.58pm, GKE traded flat at 10.4 cents.
