News

• Awarded contract for hospital. GKent announced that it has been awarded a RM365m contract from the Ministry of Works for a 220-bed hospital in Precinct 7, Putrajaya. The job will be executed on a design and build basis over 3 years (completion in Jan 2020) and is located next to the existing Hospital Putrajaya.

Comments

• Adding another hospital job. This job win does not come as a surprise given management’s previous guidance that it was pursuing it. In terms of hospital track record, GKent has completed Phase 1 (RM98m) of the Kuala Lipis Hospital and is currently executing Phase 2 (RM57m). Last month, GKent also secured the 150-bed Tg Karang Hospital (RM277m).
• Good year for job wins. With this hospital contract in the bag, GKent’s YTD job wins amounts to RM1.1bn. We estimate its orderbook to now stand at RM6bn. This translates to a superior cover ratio of 14.5x on FY16 construction revenue, the highest within out sector coverage.
• Potential metering boost? Management shared that it recently received an order for 30k units of water meters in Selangor, to be delivered on a fast track basis. While the order is small, we believe this paves way for an eventual annual supply contract potentially amounting to 400-500k units. Tenders for this contract recently closed and GKent has submitted its bid. To recap, GKent supplies water meters to all states in Peninsular Malaysia except Selangor and Melacca.

Risks

• We reckon that risk associated with this hospital job is minimal as GKent has undertaken such works before.

Forecasts

• As YTD job wins of RM1.1bn matches our full year assumption, we leave our earnings forecast unchanged. We are not expecting any further job wins for FY17 (FYE: Jan) but have penned down RM300m p.a. for FY18-19.

?????Rating

Maintain BUY, TP: RM3.77

• GKent is a key rail play with exposure to the LRT extension, LRT3 and MRT2. It also boasts solid financials with 3-year earnings CAGR of 28%, above industry ROE of 20.9% and net cash position of RM0.58/share (19% of market cap).

Valuation

• Our TP of RM3.77 is based on a simple 2-stage SOP methodology comprising (i) 15x P/E multiple applied to FY18 core earnings and (ii) its net cash position.

Source: Hong Leong Investment Bank Research - 21 Dec 2016