KUALA LUMPUR (Aug 9): Malaysian Rating Corp Bhd (MARC) has affirmed its ratings of MARC-1 and A+ on George Kent (Malaysia) Bhd's RM100 million Islamic Commercial Papers (ICP) and RM500 million Islamic Medium-Term Notes (IMTN) programmes, subject to a combined limit of RM500 million — along with a stable outlook.

In a statement on Tuesday (Aug 9), the rating firm said the affirmation is premised on George Kent's strong liquidity position, healthy balance sheet, and established presence of more than 80 years in the sector of water meter manufacturing.

These strengths are counterbalanced by the uncertainty around its construction business, cost pressures, as well as its volatile working capital profile.

MARC noted that George Kent's meter business has demonstrated fair resilience through the pandemic. Despite the pandemic-related restrictions, production volume declined by 7.3% year-on-year to 2.16 million units in the financial year ended March 31, 2022.

"While cost pressures rose from rising brass costs amid tighter supply, margin has been steady to date, thanks to [the increase in product selling price] and some forward buying by George Kent," it said.

In regard to George Kent's construction segment, MARC said the timing for the implementation of the remaining phases to construct a glove manufacturing plant in Lumut, Perak, however, is uncertain at this juncture, depending on the outlook for the rubber glove industry.

George Kent's outstanding order book of about RM486 million stems from a single project of constructing the glove manufacturing plant. Notably, Phase 1A of the project is currently ongoing with 81% of it completed as of end-May and less than RM40 million to complete the remaining 19%.

"This, and lack of new work, clouds revenue visibility for the construction segment, although we note George Kent's continuing pursuit of bidding opportunities," it said.

Looking ahead, MARC added George Kent's working capital remains volatile due to the limited number of projects to smoothen cash inflow and outflow, although the risk is substantially mitigated by its sustained net cash position.

The rating firm said George Kent's liquidity profile remains strong, with cash and cash equivalents of RM283.7 million as of end-March compared to its debt of RM220 million, including the RM132 million issued under the ICP and IMTN programmes, with debt-to-equity ratio of 0.38 times remaining moderate.

"While the ratings incorporate some room for inorganic growth, we expect any mergers and acquisitions will be value accretive, and that the actions, if realised, would be undertaken in a financially disciplined manner," said MARC.

At noon break, George Kent's share price was flat at 54 sen, bringing a market capitalisation of RM304.2 million.