George Kent seen to grow metering unit

TheEdge Mon, Sep 30, 2019 10:29am - 4 years View Original


George Kent (Malaysia) Bhd
(Sept 27, RM1.05)
Maintain outperform with an unchanged target price (TP) of RM1.15:
Recently, we came back from George Kent (Malaysia) Bhd’s briefing feeling reassured with our call and its prospects as management’s focus and outlook remain intact with no changes to financial year 2020 (FY20) to estimated FY21 (FY21E) earnings.

 
We maintain “outperform” with an unchanged sum-of-parts-(SOP) -driven TP of RM1.15. We also wish to highlight that George Kent did announced a 1.5 sen dividend in its recent results release, in line with our expectations of 3.6 sen for FY20, which was not reflected in our results note dated Sept 25.

Management is hopeful that the design for Light Rail Transit 3 (LRT3) can be finalised by year-end, while renegotiating a new contract with its work package contractors. Upon completion of its redesign, management hopes to resume work in full swing by early 2020.

As for future jobs, management is actively participating in more water and rail-related projects, which are water treatment plants overseas and locally with a total tender book of RM3.5 billion.

The rail projects eyed in the near term are mostly from overseas which are Singapore Land Transport Authority Track Works, and Bangkok Orange Line Second Phase Track Works.

George Kent has constantly been looking for opportunities to grow its metering division organically or through strategic tie-ups and acquisitions.

We remain excited with the prospects of their metering division in the near term premised on management’s effort to: i) increase product range by introducing multi-jet, D-class volumetric and SolidState meters in the future; ii) expanding market reach by signing long-term licence agreement with Honeywell for a licence of the technology and know-how to manufacture high-precision water meter measuring components for the V100 and V110 C-Class volumetric water meters; and iii) introduction of their own automated meter reading solution for the smart meters they hope to roll out into the market by 2020.

Lastly, we do not rule out the possibility of acquisition of water-related companies overseas as part of their strategy to expand their footprint beyond Southeast Asia.

We reiterate our “outperform” call and an unchanged SOP-driven TP of RM1.15 that is based on valuation base year of FY21E as we believe its prospects remain promising albeit weakness in earnings.

Our TP implies FY21E price-earnings ratio of 7.8 times which is in line with our ascribed multiple of six to 11 times within the construction space.

Risks to our call are higher/lower-than-expected margins, and delays in construction works. — Kenanga Research, Sept 27

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