With the switch in FYE from January to March, GKENT reported 2-month earnings of RM11.3m (from Feb-21 to March-21) bringing 14MFY21 to RM48.7m. These 2- month earnings fall very much within our/consensus estimates. Due to an overall lack of investor interest, we choose to cease active coverage on GKENT. Consequently, the stock is assigned a Not Rated (from UNDERPERFORM) with our last TP being RM0.56.

GKENT switched its FYE from January to March – hence, it reported 2-month earnings of RM11.3m (from Feb 2021 to March 2021) bringing 14MFY21 to RM48.7m. Compared against our/consensus initial FY22E earnings of RM53m (pre-adjustment for the change in FYE); these 2-month earnings of RM11.3m fall very much within estimate, at 21%. It also declared a 1.0 sen dividend for this period.

Given the change in FY, there were no QoQ and YoY comparisons. Nonetheless, we note that out of the RM11.3m PAT recorded within this 2 months, LRT3 contributed RM4.9m while the rest came from its metering division.

Outlook for the group remains challenging with GKENT yet to secure any new external construction projects since Dec 2016. Current construction order-book stands at c.RM3.0b, of which the bulk (of >95%) is derived from LRT3 at RM2.8b.

However, GKENT is likely to lose their PDP role in LRT3. With the recent arbitration results favoring MRCB over GKENT in regards to the LRT3 funding dispute; we foresee the former acquiring latter’s 50% stake in the PDP once the independent valuer finalizes the valuation for the JV stake. Subsequent to that, GKENT will no longer play a part in the LRT3 and would lose a sizeable chunk from its outstanding order-book.

Latecomer in the glove space. Meanwhile, we opined that their decision to enter the glove space (with a 40% stake in Dynacare) in late March 2021 is untimely as glove prices have already come off their peak given stiffer competition from capacity additions and less pressing demand from the global healthcare space. Note that out of the entire RM624m glove plant contract awarded by Johan to GKENT, we have only imputed in RM50m worth of replenishment as we do not foresee its glove venture following through with the entire contract sum.

All in, we cease active coverage on GKENT, given the lack of investor interests. Consequently, the stock is assigned a Not Rated (from UNDERPERFORM) with our last TP of RM0.56 pegged to 0.55x PBV (-1.0SD below mean).

Source: Kenanga Research - 22 Jun 2021