Highlights

GKENT

Author: YiStock   |   Latest post: Wed, 30 Mar 2016, 2:22 AM

 

GKENT - Fairly valued for now?- YiStock

Author:   |    Publish date:


When i wrote this, i expect i will be again cursed by many. But, please, my intention is good. So please pardon me. Furthermore, i'm also not very sure if my guestimate is correct of not.

Now, let begin.

Gkent has released latest set of result. A "FANTASTIC RESULT" indeed. But, i' cautioned. I will provide my reason below.

Brief History:

Gkent is another Old Giant, just like Thong Guan and Tien Wah, founded since 1936. It has 2 main division: the water meter and the engineering segment. The engineering division has been the main contributor to company's bottom line, thanks to LRT extension work awarded to Gkent in year 2012.

Some Major Contracts Awarded:

Date Project  Amount (RM)
July 2012 LRT extension work - 44 months (completed) 955.8 mil + 128.6 mil
Oct 2014 Hospital Kuala Lipis - by April 2017 57 mil
Sept 2015 LRT 3 (PDP) - 2016 to 2020 4,500 mil
Sept 2015 Hong Kong Water Meter - 2015 - ?? 31.9 mil

Based on above, i try to add the total engineering work (prior to LRT 3 and exclude water meter) which stood at approximately 1,141.4 mil.

Then,

I try to tabulate past 4 years of annual report. Reason is i want to see whether LRT extension work which worth at 955.8 mil + 128.6 (optional) has finished its contribution or not.

    Infra/ engineering (RM) Metering (RM)          Total Infra % Meter %
Jan 2013 Revenue 149.6 mil 127.2 mil      
  Segment Profit 28.5 mil 15.0 mil 43.5 mil 65.5% 34.5%
Jan 2014 Revenue 390.7 mil 115.6 mil      
  Segment Profit 44.8 mil 18.0 mil 62.8 mil 71.3% 28.7%
Jan 2015 Revenue 256.5 mil 96.7 mil      
  Segment Profit 32.5 mil 19.2 mil 51.7 mil 62.9% 37.1%
Jan 2016 Revenue 432 mil 105.4 mil      
  Segment Profit 60.8 mil 23.6 mil 84.4 mil 72% 28%
  TOTAL REVENUE 1,228.8 mil        

(1) Based on above table, i guess the LRT extension work awarded in July 2012 for 44 months (which is approximately 3 1/2 years) may have ended in Jan 2016.

(2) If my guestimate is correct, the latest Q4 FY2016 annoucement has concluded the last part of Revenue & Earning for 2012 LRT extension work. In another word, the contribution of LRT extension work may have come to the end. 

(3) From the past 4 years Metering Result, it growth steadily from 15 mil to 23.6 mil annualy. Based on latest Jan 2016 segment profit ratio, water meter has contributed 28% and engineering has contributed 72%. I think is fair for me to use the same 28% & 72% to translate the NET Profit Contribution both segment from full year of about RM 50.3 million. 

So, 

Engineering Segment = 50.3 x 72% = 36.2 mil / 300,410,000 shares = 12.05 sen EPS annually

Water Segment = 50.3 x 28% = 14.08 mi / 300,410,000 shares = 4.68 sen EPS annually 

Since the contribution for LRT extension work has ended, the 12.05 sen should be excluded from future estimation of EPS.

Now,

Let add in LRT 3 project which will contribute from 2016 - 2020 for approximately 5 years. Hospital kuala lipis contract will end in one year time, therefore, i take it out from calculation.

For Gkent engineering segment,

i roughly put the order book at RM 4,500 mil for 5 years.

For easy calculation, i used 6% as net margin (which in actual i believe is lower eventhough Gkent act as project delivery partner)

Annnual Sales = 4,500 mil / 5 years = RM 900 mil

Annual Profit 900 mil x 6% = RM 54.0 mil 

Annual EPS 54.3 mil/ 300,410.000 = 18.1 sen EPS per year 

For Gkent meter segment, it gives 4.68 sen EPS per year

Total EPS per year = 22.8 sen 

If PE is 10, the share price is worth RM 2.28 per share.

At current share price of RM 1.80, there maybe some room of profit if based on latest financial result.

However, IF MY GUESTIMATE IS CORRECT, the room for share price appreciation maybe limited for Gkent when future EPS can only be achieved at 22.8 sen per year.

To add salt onto the wound, for large scale long term infra project, lesser profit during the early part of the project, and more profit recognised towards the end of 5 years contract (i suspect this is the reason why the 22% operating margin is recorded in Q4 2016), the EPS of 22.8 sen may be achieveable only from 2018 onwards? Maybe..I am not very sure either.

 

Anyway, above are just my speculative guestimate. I may be right, may be wrong.

Furthermore, Gkent may acquire more projects in the future. So, please treat this article for reading pleasure only. It is definately not a buy/ sell recommendation.

cheers,

YiStock

29th March 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

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Labels: GKENT

Related Stocks

Chart Stock Name Last Change Volume 
GKENT 1.04 0.00 (0.00%) 1,827,100 

  3 people like this.
 
buddyinvest Yi-stock, I almost fainted when I read the above. You are so bullish on Geshen & Tienwah, but not so on Gkent.

For Gkent. It will surely secure other projects from time to time. Apa lah Yi-stock? If your assumption is correct, then Gkent's business development managers no need to find other jobs in the next five years, just shake balls in office.
30/03/2016 4:10 AM
99kandar if you write up something good or bad of a company... don't guess.. pun in the right and true!! what a GUESSING write up??? Siok sendiri ka...
or because you are sore grape//??? OOOOoooooo
30/03/2016 7:09 AM
bsngpg YiStock: I give you a big LIKE. Yes I agree that logically there should be new projects secured in next years which is not in your guesstimation but I prefer your worst case analysis and let the best case to take care by itself.

One potential risk is that if his buddy- jib gor somehow cannot stay as PM anymore, there would be a big negative blow to GKent.
30/03/2016 7:33 AM
buddyinvest Yi-stock, I appreciate your efforts. But if u apply your theory ( there will be no new contracts or new jobs for the next 5 years) for all other construction stocks, then I'm afraid that there is no stock we can buy. Be realistic lah. If they can secure 4.5bil job, they are no ordinary player.
30/03/2016 7:34 AM
buddyinvest lesser profit during the early part of the project, and more profit recognised towards the end of 5 years contract......

Even better as we like stocks that experience incremental profits... Hihi
30/03/2016 7:37 AM
Koon Bee Too many low class of article flying around i3
30/03/2016 7:43 AM
bsngpg April fool is around the corner, people who use BRAIN to think and analyse would definitely NOT related to it. I am not sure about the opposite.
30/03/2016 7:44 AM
YiStock Hi buddyinvest, I believe you didn't finish reading the whole article. I did mentioned that Gkent may acquire more projects in the future."

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buddyinvest Yi-stock, I appreciate your efforts. But if u apply your theory ( there will be no new contracts or new jobs for the next 5 years) for all other construction stocks, then I'm afraid that there is no stock we can buy. Be realistic lah. If they can secure 4.5bil job, they are no ordinary player.
30/03/2016 07:34


buddyinvest Yi-stock, I almost fainted when I read the above. You are so bullish on Geshen & Tienwah, but not so on Gkent.

For Gkent. It will surely secure other projects from time to time. Apa lah Yi-stock? If your assumption is correct, then Gkent's business development managers no need to find other jobs in the next five years, just shake balls in office.
30/03/2016 04:10
30/03/2016 8:15 AM
kai8994 Agree with YiStock, the explosive earning should come to tail end already while waiting to kick off next project. You will understand YiStock if you are an accountant.
30/03/2016 8:20 AM
YiStock Muscle, you are among the "genius" in i3. I believe you have better judgement than me. You are absolutely right. Geshen seriously fail me due to one of my misjudgment. Therefore, i become extremely careful when analyzing a company.
Please skip my article as it is purely based on my own assumption. Also bear in mind, a bad can turn good. (I'm referring to Geshen).Equally, a good can turn bad. I have seen too many such cases. Only time will tell. Therefore, i advise you to stay sane when investing.

Cheers!
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muscle Realy poor judgement... Pls dun make any more anlysis again... If u recomending buy on geshen n tienwah, tis shows how poor ur analysis.. Pla dun make urself like a fool
30/03/2016 05:50
30/03/2016 8:23 AM
buddyinvest Yi-stock, again, we appreciate your contributions.
30/03/2016 8:27 AM
YiStock 99kandar, stay cool buddy. If i don't GUESS, i'm already insider. And i will goreng you kau kau till you "hangus".
Just kidding :-)

I am not sour grape, i have better exposure in other construction stocks. I just don't want be "hangus".

I'm just small tiny investor trying to avoid all pit fall.

----------------------------------------------------------------
99kandar if you write up something good or bad of a company... don't guess.. pun in the right and true!! what a GUESSING write up??? Siok sendiri ka...
or because you are sore grape//??? OOOOoooooo
30/03/2016 07:09
30/03/2016 8:28 AM
Icon8888 I am a shareholder of Gkent, but I endorse YiStock article

YiStock has a track record of objective analysis, He pointed out a lot of things that I couldn't see. That is value added

Having said so, I think Gkent is a good buy at current price. They might get more contracts later due to their relationship with Mr 2.6

Hee hee
30/03/2016 8:41 AM
nokenzo YiStock, good analysis.
30/03/2016 8:43 AM
YiStock Icon8888, like to ask your opinion, being a Project Delivery Partner for LRT3, is Gkent allowed to bid for own contract? Thanks
30/03/2016 8:49 AM
YiStock 2012 LRT extension work, Gkent acted as contractor. For LRT3, Gkent is PDP.
30/03/2016 8:50 AM
Icon8888 Don't know woh, just close my eyes and dumb dumb hold. I have faith in our country's crony system. Somehow they will squeeze out something, if not MRT then maybe NRT , PRT or QRT
30/03/2016 8:52 AM
Yoon129 good analysis :)
30/03/2016 8:59 AM
speakup another dooms day article.
30/03/2016 9:02 AM
mf take profit
30/03/2016 9:03 AM
superfly sudah jual 1.86 tadi maa..awal awal sudah done..stock lama beli 1.55 dulu.
30/03/2016 9:07 AM
buddyinvest Manyak panlai Superfly.
30/03/2016 1:05 PM
paperplane Gkent lousy. Delay, delay, delay. And can entitled pdp. Pui
30/03/2016 9:54 PM
paperplane Sell.
01/04/2016 12:55 AM
M17 @YiStock, as to whether PDP can bid for the other project work, think you can look at the previous MRT project as a reference.

"In December 2010, the government approved the implementation of the MRT project,[11] and appointed Gamuda-MMC JV as Project Delivery Partner. Apart from tunneling works, the Gamuda-MMC JV will not be allowed to bid for the other eight parcels of the project.[12]"

https://en.wikipedia.org/wiki/Klang_Valley_Mass_Rapid_Transit_Project
10/04/2016 10:18 AM
YiStock Mr. M, thank you for the info. Cheers,
13/04/2016 1:57 PM
moneySIFU YiStock, thank you for sharing.

No matter how humble you are in your writing & STATE VERY CLEAR the article is for brain storming purposes.

Some primary school graduates just don't understand how to react or write proper disagreement, so please forgive those low class jerks.

----------------------------------------------------------
paperplane2016 Gkent lousy. Delay, delay, delay. And can entitled pdp. Pui
30/03/2016 21:54
18/04/2016 12:06 AM
paperplane Moneysifu, where u get your education? Graduate hor, stands for university. Where got such word called primary school graduates. Pity your poor knowledge. Just be extra careful in investing. My only advise to losers who can't think.
18/04/2016 12:19 AM
moneySIFU Oh, paperplane, you know the meaning of graduates, OMG, you know english? Thought you are now learning how to upgrade to become RECYCLE BIN.

I suspect you are not graduate, even though you did, that's the standard of your university, primary school level. Your behaviour speak it all & match the expectation, childish & low class.
18/04/2016 12:31 AM
moneySIFU You know why i put my name as sifu, because I want even a junk also have to call me sifu whenever they see me. No matter how resist you are in your heart, you still have to call me sifu, paperplane.
18/04/2016 12:34 AM
moneySIFU No matter how good you talk, paperplane, paperplane is anyway just a fake plane, can't fly by itself, all have to do just begging for help to push.
18/04/2016 12:36 AM
moneySIFU I always think how to be superior & you only think how to be dwarf. That's the gap between you & me。
18/04/2016 12:43 AM
moneySIFU When you named yourself as paperplane in the cyber world, you have indeed accidentally & inadvertently diclose your dark side, fragile heart & inferiority.

All you did so far in i3 were just to cover up & try to be superior. But very obviously, YOU FAILED.
18/04/2016 12:49 AM
paperplane Loser
18/04/2016 1:54 AM
paperplane Who care what u think? What u said I just treat it like a fart....
18/04/2016 1:56 AM
YiStock PETALING JAYA: George Kent (M) Bhd is eyeing opportunities from the UK and Europe to participate in rail road projects.

Chairman Tan Sri Tan Kay Hock (pic) said that it was still in the early stages but hoped to secure some projects there.

“It’s the rail road and construction sector we are looking at. We are already supplying meters to the UK as an original equipment manufacturer,” Tan told a press conference here after its AGM yesterday.

The engineering and construction company said that its order book stood at [RM5.5bil of which 20% is from the metering segment while 80% from the engineering business segment.]

-------------------------------------------------------------------------
Order book: RM 5.5 billion x 80% = RM 4.4 billion

LRT 3: RM 4.5 billion.

Most likely guesstimate:
(1) The Ampang LRT contribution should have ended and the billing is likely "in-advance" mode.
(2) Latest EPS may have already include a small portion of LRT3 project
01/07/2016 12:04 PM
02/07/2016 4:28 PM
Ooi Teik Bee Dear YiStock,
LRT3 is in PQ stage only, no tender had been called. Hence the 6% management fee of LRT3 should not be included in recent quarter result released. I had checked with many contractors who are shortlisted for this LRT3 job.
Thank you.
Ooi
02/07/2016 5:36 PM
paperplane Economic good or bad, govt still pay gkent.
02/07/2016 5:44 PM
stockmanmy the PV of the profits from the LRT work will definitely be less than trying to find its EPS X 10.........hahahahahaha
02/07/2016 11:47 PM
YiStock Very interesting research by HLIB on Gkent:

http://klse.i3investor.com/blogs/hleresearch/101233.jsp

(1)Gkent financial year ended 31 Jan every year, which mean that we are now at FY 17)

(2) Based on the HLIB research, i extract the important forecast by HLIB:

"We forecast FY17 core earnings to scale a new high of RM52m (+29% YoY)

=> RM 52,000,000 / 300,400,000 = EPS 17 sen

For FY18, growth moderation is expected at +6% to RM55m as the LRT3 would have just commenced.

=> RM 55,000,000 / 300,400,000 = EPS 18.31 sen

Earnings growth will regain traction in FY19 (+17% YoY) to RM64m once the LRT3 moves into full swing.

=> RM 64,000,000/ 300,400,000 = EPS 21.3 sen

(3) above all EPS forecast has not included upcoming dilution from bonus issue.

(4) based on my personal estimated EPS is RM 0.22 sen per share. So, it did not run far from HLIB.

(5) I give PE 10 for construction stock, so RM 2.2 is my target price.

(6) HLIB give PE 14 for "FY 18 earning" (Jan 2019), so, RM 0.1831 x 14 = RM 2.56

(7) Add in 70 sen cash/ share = RM 2.56 + RM 0.70 = RM 3.26 (roughly)

(8) Let work backward using PE 14 for FY 17 HLIB forecast = 0.17 x 14 = RM 2.38

(9) Add back 70 sen cash/ share = RM 3.08 by FY 17 ( Jan 2017)

Point of consideration:

(1) PE 10 is cold eye standard for growth stock. For high growth stock, PE 12 to 15 maybe. Is Gkent a high growth stock?

(2) RM 0.70 per share cash. Can the RM 0.70 per share cash will become even more, or even less 3 years down the road?

(3) Should we include current cash into valuation? (HLIB regular practice)

Share investment is 25% art, 25% science, 50% bank push :-)

For value investor, PE 14 really can ar?

Speculator don't curse me, because this opinion is for value investors.

Congratulation if you have made money. You deserve it, because you take higher risk than me. I super timid now.
03/08/2016 11:12 AM
PlsGiveBonus It has made closely 100% within a year, pretty much confirm it is close to fully valuation considered it is mid cap company
03/08/2016 11:20 AM
PlsGiveBonus Gkent is my favorite too,
But I'm going to dispose it and turn into my next pick which is very likely another Gkent but with attractive outlook
03/08/2016 11:22 AM
YiStock Dear Mr Ooi,

Is Gkent responsible for the PQ (started their role as PDP)?
03/08/2016 11:28 AM
Ooi Teik Bee Dear YiStock,

Yes, I was told they are responsible for PQ. They are PDP for LRT3. MRCB/Gkent JB entitle to 6% management fee.
Thank you.
Ooi
03/08/2016 11:34 AM
paperplane I have many KESM, next is GKENT.

Hopefully good.......
03/08/2016 11:38 AM


 

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