• Background – George Kent (GKent) is an established engineering and metering company specialising in the delivery of infrastructure projects like water treatment plants, rail transportation and hospitals, as well as the manufacturing and trading of water-related products. Historically, the construction and engineering segment contributes the bulk of GKent’s revenue, making up about 72.0%-80.0% of its revenue in the past three years. Todate, the group has completed more than 30 key water infrastructure projects, with notable projects like the Pahang-Selangor raw water transfer and Paching water treatment facilities under its belt.

• Results Update – George Kent (M) Bhd’s 3QFY17 net profit jumped 96.7% Y.o.Y to RM23.7 mln, against RM12.1 mln a year ago – mainly due to the stronger performance of both its engineering and metering division. Revenue for the quarter also increased 25.9% Y.o.Y to RM122.1 mln, from RM96.9 mln in the previous corresponding period.

• Cumulative 9MFY17 net profit surged 95.0% Y.o.Y to RM59.3 mln, from RM30.4 mln, intandem with the 51.4% Y.o.Y hike in revenue from RM270.6 mln to RM409.8 mln– contributed by the aforementioned reasons.

• Future Plans – Going forward, the group expects to achieve a record year with about RM400.0 mln to RM500.0 mln worth of projects on the Ampang LRT line extension project, alongside the progression of the Mengkuang Dam expansion project - expected to be completed by 2017. The group also plans to tender for high value infrastructure engineering projects such as sewerage treatment projects totaling RM250.0 mln.

• Investment Risks – Risks to the group include project delays and fluctuation in the cost of raw materials, which could reduce margins, as well as the inability to replenish its projects after completion.

• Investment Highlights – GKent’s outstanding orderbook swelled to RM5.9 bln following the recent award of the MRT 2 system works package and the Tanjung Karang Hospital on a design and build basis. It expects a double digit three-year revenue and net profit CAGR of 11.2% and 44.9% respectively to RM485.5 mln and RM85.5 mln in 2018. The group has consistently paid out 42.0%-57.0% of its net profits as dividends for the past 4 years and has declared a second interim of 2.0 sen a share, which is payable on 13th January 2017.

• At this juncture, we think that GKent’s valuation offers a slight upside given that the group is trading at a forward PER of 12.5x in FY18, below its peers PER of 13.0x-16.0x.

Source: Mplus Research - 7 Dec 2016