Brokers’ take: CGS-CIMB downgrades GKE Corp to ‘hold’ on near-term challenges

CGS-CIMB has downgraded its call on GKE Corp : 595 0% to “hold” from “add” as it sees a slowdown in the Catalist-listed logistics provider’s ready-mix concrete (RMC) operations due to weakening sentiment in China’s property sector as well as tougher macroeconomic conditions.

In a report on Monday (Jun 27), the research house said it anticipates weaker-than-expected volume sales from GKE’s RMC plant in Wuzhou as developers curtail project executions in view of the construction sector’s tightening liquidity in the near term.

It also believes delayed government approvals may have pushed back the commencement of GKE’s new RMC and waste recycling plants in Cenxi.

As such, CGS-CIMB has reduced its FY2022 to FY2024 profit before tax forecasts for the infrastructural logistics segment by 24 to 42 per cent, resulting in lower group earnings per share estimates by 19 to 29 per cent over the same period.

This brings its FY2022 net profit forecast for the group to S$6.8 million, down 41 per cent from the previous year, and translates to an estimated full-year distribution per share of S$0.002.

The revised assumptions have led to a lower target price of S$0.10 compared with S$0.16 previously, although CGS-CIMB remains positive on GKE’s logistics segment in Singapore.

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“Warehouse utilisation and rates in Singapore should remain strong in H2 FY2022 due to strong demand for storage spaces,” said the research house.

Noting that the group is still in the process of converting some of its yard space into higher-yield chemical storage areas, CGS-CIMB believes this initiative will commence contribution in H1 FY2023.

The research house also sees potential cross-selling synergies from GKE’s recent acquisition of specialty chemicals company, Fair Chem, in the medium term.

As at 11.10 am on Tuesday, shares of GKE Corp were trading S$0.001 or 1 per cent higher at S$0.105.