SGX Market Strategist, Equity & Fixed Income, Singapore Exchange Ltd (SGX)

Geoff Howie

SGX Market Strategist, Equity & Fixed Income

Asia’s leading multi-asset exchange

Singapore Exchange Ltd (SGX)

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Equity Bottom-Up

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<p>FOR the 5 trading sessions that spanned Jun 10 to 16, the Straits Times Index (STI) declined 3.5 per cent, with the FTSE China A50 Index gaining 1.2 per cent, the Hang Seng Index falling 4.5 per cent and the FTSE Bursa Malaysia KLCI sliding 2.2 per cent. </p>

<p><br>
Overall, institutions were net sellers of Singapore stocks over the 5 sessions with S$166 million of net outflow, following the S$52 million of net outflow for the preceding 5 sessions. UOB, OCBC, Singapore Airlines, Thai Beverage and Keppel DC Reit led the net institutional outflows for the 5 sessions through to Jun 16.</p>

<p><br><strong>Share buybacks</strong></p>

<p><br>
There were 26 primary-listed stocks conducting share buybacks over the 5 sessions ended Jun 16, with a total consideration of S$122.8 million, more than doubling the previous week’s consideration tally. Wilmar International and Keppel Corporation led the consideration tally, buying back shares at average prices of S$4.08, and S$6.75 respectively.</p>

<p> </p>

<p><strong>Director and substantial shareholder transactions</strong></p>

<p><br>
The 5 trading sessions saw over 100 changes to director interests and substantial shareholdings filed for close to 50 primary-listed stocks. This included 19 company director acquisitions with 2 disposals filed, while substantial shareholders filed 15 acquisitions and 12 disposals.</p>

<p> </p>

<p><strong>AEM Holdings</strong></p>

<p><br>
The Employees Provident Fund Board’s (EPF) deemed interest in AEM Holdings (AEM) has once again crossed above the 5.00 per cent substantial shareholder threshold.  The EPF had reduced its deemed interest in AEM below the 5.00 per cent threshold on Feb 4 to 4.87 per cent when it sold some shares, but on Jun 9, it bought shares again and raised its deemed interest to 5.05 per cent.  EPF’s latest purchase of 550,000 shares at S$4.39 per share, is at a lower average price than the S$4.53 per share it had received when it sold shares and reduced its deemed interest in AEM to below the substantial shareholder threshold in February.</p>

<p> </p>

<p>On Jun 16, AEM announced that it would create more than 300 additional jobs with the expansion of its Singapore, Malaysian and US operations. AEM’s Penang expansion will include an R&amp;D lab that will enable it to boost its R&amp;D capabilities, while it will also double its headcount in Malaysia to support the expansion, including new roles for technicians, engineers, customer support group, and supply chain management. AEM is also a Gold Sponsor and the sole sponsor of the SEMICON University Program at SEMICON SEA 2022, scheduled this week in Penang.</p>

<p> </p>

<p>Separately, with effect from Jul 1, Andre Andonian will join the board of AEM as an independent director. At McKinsey &amp; Company, Andonian serves as a member of the global board, senior partner for the Singapore office, chairman of Japan and the managing partner for Korea. Back on May 5, AEM reported its highest quarterly revenue in its history at S$261.9 million for Q1 2022 (ended Mar 31), a 226.4 per cent year-on-year increase, while upwardly revising its FY22 revenue guidance to between S$700 million and S$750 million.</p>

<p> </p>

<p><strong>Mapletree Industrial Trust </strong></p>

<p><br>
Between Jun 10 and 13, Mapletree Industrial Trust Management non-executive director Chua Tiow Chye acquired 250,000 units of Mapletree Industrial Trust (MIT) at an average price of S$2.49 per unit.</p>

<p><br>
With a consideration of S$621,382, this increased his deemed interest from 0.05 per cent to 0.06 per cent. It followed his acquisition of 200,000 units at S$2.49 per unit on Feb 7 and 200,000 units at S$2.60 per unit on Jan 26.</p>

<p><br>
Chua is also the deputy group CEO of Mapletree Investments, the sponsor of MIT. He focuses on driving the sponsor’s strategic initiatives including expanding and directing the sponsor’s international real estate investments and developments. He also directly oversees the sponsor’s global lodging sector as well as the private capital management function.</p>

<p><br>
For the FY22 (ended Mar 31), MIT reported its gross revenue and net property income increased 36.4 per cent and 34.5 per cent year on year to S$610.1 million and S$472.0 million respectively. MIT owns 141 properties, comprising 85 properties in Singapore and 56 properties in North America, which includes 13 data centres in North America held through the joint venture with the sponsor.</p>

<p><br><strong>Uni-Asia Group</strong></p>

<p><br>
On Jun 13, Uni-Asia Group executive chairman Michio Tanamoto acquired 150,000 shares of the company for a consideration of S$156,000. At an average price of S$1.04 per share, this increased his total interest in the company from 3.24 per cent to 3.44 per cent. This closely followed his acquisition of 50,000 shares at S$1.09 per share on Jun 9. Tanamoto was appointed the executive chairman of Uni-Asia Group in April 2020.</p>

<p><br><strong>The Straits Trading Company</strong></p>

<p><br>
On Jun 13, The Straits Trading Company independent and non-executive director Tan Tiong Cheng acquired 30,000 shares of the company for a consideration of S$90,300, at an average price of S$3.01 per share. This increased his direct interest in the conglomerate-investment company from 0.03 per cent to 0.04 per cent. He is also an independent and non-executive director of UOL Group, the lead independent director of Heeton Holdings, and a non-executive independent director of Amara Holdings.</p>

<p><br>
The same session also saw Straits Trading Company independent and non-executive director Chua Tian Chu acquire 7,000 shares of the company at S$3.00 per share.</p>

<p><br>
Chua last acquired shares in the company in March, and both directors acquired shares in the company in January. </p>

<p><br><strong>GKE Corporation</strong></p>

<p><br>
On Jun 15, GKE Corporation executive director and CEO Neo Cheow Hui acquired 500,000 shares of the company, for a consideration of S$52,000 at 10.4 cents per share. This increased his total interest in the provider of integrated warehousing and logistics solutions from 3.60 per cent to 3.67 per cent.</p>

<p><br>
Neo has extensive experience in the warehousing and logistics industry which has played a pivotal role in developing high level strategies for the group and making major corporate investments over the last 20 years.</p>

<p><br><strong>Hong Fok Corporation</strong></p>

<p><br>
On Jun 10, Hong Fok Corporation executive director and joint CEO Cheong Sim Eng acquired 43,000 shares of the company, for a consideration of S$41,925 at 98.0 cents per share. Cheong maintains a 20.27 total interest in the property developer.</p>

<p><br>
He is principally involved in the group’s overall operations and management, with greater emphasis in Singapore and he has over 37 years of experience in the property development business.</p>

<p><br><strong>Grand Venture Technology</strong></p>

<p><br>
Between Jun 13 and 15, Grand Venture Technology executive chairman Ricky Lee Tiam Nam acquired 50,000 shares of the company at an average price of 76.8 cents per share. With a consideration of S$38,375, this increased his direct interest in the innovative precision manufacturer from 15.33 per cent to 15.34 per cent. </p>

<p><br>
Responsible for the overall strategic direction and development of the group, Lee was one of the founding directors of the company.</p>

<p><br>
He has over 38 years of experience in the manufacturing, assembly/servicing and precision engineering industries, beginning his career in 1982 as a machinist in Pan-World Precision Engineering.</p>

<p><br>
On Jun 15, GVT executive director and CEO Julian Ng Wai Yuen also acquired 10,000 shares at an average price of 76.5 cents per share. This increased his direct interest in the company from 3.54 per cent to 3.55 per cent. Ng has more than 20 years of experience in the manufacturing and precision engineering industries.</p>

<p><br>
In early May, GVT reported 19.5 per cent year-on-year growth in Ebitda and 8.9 per cent growth in net profit after tax for Q1 FY2022 (ended Mar 31), on the back of a 41.0 per cent revenue increase from S$23.0 million in Q1 FY2021 to S$32.5 million in Q1 FY2022.</p>

<p><br>
Lee noted with the results that robust demand from the semiconductor industry saw GVT make good progress in its discussions with potential customers engaged in the manufacture of metrology and inspection, etching, and wafer deposition equipment. Lee added that when fully onboarded, these customers are expected to be the key drivers for the front-end semiconductor activities of GVT in the near future. In Q1 FY2022, the semiconductor sector contributed 67.2 per cent to the group’s total revenue, comparable with the 71.1 per cent contribution in FY21 and 68.7 per cent contribution in 2020.</p>

<p><br><strong>Oxley Holdings</strong></p>

<p><br>
Between Jun 14 and 15, Oxley Holdings executive director and deputy CEO Eric Low See Ching acquired 100,000 shares of the company at 17.1 cents per share.</p>

<p><br>
Low maintains a 28.13 per cent direct interest in the firm and is responsible for the operation of the group including sales and marketing, project development, business development and financial management. He also assists the CEO in charting and executing strategic plans.</p>

<p><br><strong><em>Inside Insights is a weekly column on The Business Times,<a href="https://www.businesstimes.com.sg/companies-markets/buybacks-surge-mapletrees-chua-tiow-chye-adds-to-mit-stake"> read </a>the original version.</em></strong></p>
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    Share Buybacks


FOR the 5 trading sessions that spanned Jun 10 to 16, the Straits Times Index (STI) declined 3.5 per cent, with the FTSE China A50 Index gaining 1.2 per cent, the Hang Seng Index falling 4.5 per cent and the FTSE Bursa Malaysia KLCI sliding 2.2 per cent. 

 
Overall, institutions were net sellers of Singapore stocks over the 5 sessions with S$166 million of net outflow, following the S$52 million of net outflow for the preceding 5 sessions. UOB, OCBC, Singapore Airlines, Thai Beverage and Keppel DC Reit led the net institutional outflows for the 5 sessions through to Jun 16.

 Share buybacks

 
There were 26 primary-listed stocks conducting share buybacks over the 5 sessions ended Jun 16, with a total consideration of S$122.8 million, more than doubling the previous week’s consideration tally. Wilmar International and Keppel Corporation led the consideration tally, buying back shares at average prices of S$4.08, and S$6.75 respectively.

 

Director and substantial shareholder transactions

 
The 5 trading sessions saw over 100 changes to director interests and substantial shareholdings filed for close to 50 primary-listed stocks. This included 19 company director acquisitions with 2 disposals filed, while substantial shareholders filed 15 acquisitions and 12 disposals.

 

AEM Holdings

 
The Employees Provident Fund Board’s (EPF) deemed interest in AEM Holdings (AEM) has once again crossed above the 5.00 per cent substantial shareholder threshold.  The EPF had reduced its deemed interest in AEM below the 5.00 per cent threshold on Feb 4 to 4.87 per cent when it sold some shares, but on Jun 9, it bought shares again and raised its deemed interest to 5.05 per cent.  EPF’s latest purchase of 550,000 shares at S$4.39 per share, is at a lower average price than the S$4.53 per share it had received when it sold shares and reduced its deemed interest in AEM to below the substantial shareholder threshold in February.

 

On Jun 16, AEM announced that it would create more than 300 additional jobs with the expansion of its Singapore, Malaysian and US operations. AEM’s Penang expansion will include an R&amp;D lab that will enable it to boost its R&amp;D capabilities, while it will also double its headcount in Malaysia to support the expansion, including new roles for technicians, engineers, customer support group, and supply chain management. AEM is also a Gold Sponsor and the sole sponsor of the SEMICON University Program at SEMICON SEA 2022, scheduled this week in Penang.

 

Separately, with effect from Jul 1, Andre Andonian will join the board of AEM as an independent director. At McKinsey &amp; Company, Andonian serves as a member of the global board, senior partner for the Singapore office, chairman of Japan and the managing partner for Korea. Back on May 5, AEM reported its highest quarterly revenue in its history at S$261.9 million for Q1 2022 (ended Mar 31), a 226.4 per cent year-on-year increase, while upwardly revising its FY22 revenue guidance to between S$700 million and S$750 million.

 

Mapletree Industrial Trust 

 
Between Jun 10 and 13, Mapletree Industrial Trust Management non-executive director Chua Tiow Chye acquired 250,000 units of Mapletree Industrial Trust (MIT) at an average price of S$2.49 per unit.

 
With a consideration of S$621,382, this increased his deemed interest from 0.05 per cent to 0.06 per cent. It followed his acquisition of 200,000 units at S$2.49 per unit on Feb 7 and 200,000 units at S$2.60 per unit on Jan 26.

 
Chua is also the deputy group CEO of Mapletree Investments, the sponsor of MIT. He focuses on driving the sponsor’s strategic initiatives including expanding and directing the sponsor’s international real estate investments and developments. He also directly oversees the sponsor’s global lodging sector as well as the private capital management function.

 
For the FY22 (ended Mar 31), MIT reported its gross revenue and net property income increased 36.4 per cent and 34.5 per cent year on year to S$610.1 million and S$472.0 million respectively. MIT owns 141 properties, comprising 85 properties in Singapore and 56 properties in North America, which includes 13 data centres in North America held through the joint venture with the sponsor.

 Uni-Asia Group

 
On Jun 13, Uni-Asia Group executive chairman Michio Tanamoto acquired 150,000 shares of the company for a consideration of S$156,000. At an average price of S$1.04 per share, this increased his total interest in the company from 3.24 per cent to 3.44 per cent. This closely followed his acquisition of 50,000 shares at S$1.09 per share on Jun 9. Tanamoto was appointed the executive chairman of Uni-Asia Group in April 2020.

 The Straits Trading Company

 
On Jun 13, The Straits Trading Company independent and non-executive director Tan Tiong Cheng acquired 30,000 shares of the company for a consideration of S$90,300, at an average price of S$3.01 per share. This increased his direct interest in the conglomerate-investment company from 0.03 per cent to 0.04 per cent. He is also an independent and non-executive director of UOL Group, the lead independent director of Heeton Holdings, and a non-executive independent director of Amara Holdings.

 
The same session also saw Straits Trading Company independent and non-executive director Chua Tian Chu acquire 7,000 shares of the company at S$3.00 per share.

 
Chua last acquired shares in the company in March, and both directors acquired shares in the company in January. 

 GKE Corporation

 
On Jun 15, GKE Corporation executive director and CEO Neo Cheow Hui acquired 500,000 shares of the company, for a consideration of S$52,000 at 10.4 cents per share. This increased his total interest in the provider of integrated warehousing and logistics solutions from 3.60 per cent to 3.67 per cent.

 
Neo has extensive experience in the warehousing and logistics industry which has played a pivotal role in developing high level strategies for the group and making major corporate investments over the last 20 years.

 Hong Fok Corporation

 
On Jun 10, Hong Fok Corporation executive director and joint CEO Cheong Sim Eng acquired 43,000 shares of the company, for a consideration of S$41,925 at 98.0 cents per share. Cheong maintains a 20.27 total interest in the property developer.

 
He is principally involved in the group’s overall operations and management, with greater emphasis in Singapore and he has over 37 years of experience in the property development business.

 Grand Venture Technology

 
Between Jun 13 and 15, Grand Venture Technology executive chairman Ricky Lee Tiam Nam acquired 50,000 shares of the company at an average price of 76.8 cents per share. With a consideration of S$38,375, this increased his direct interest in the innovative precision manufacturer from 15.33 per cent to 15.34 per cent. 

 
Responsible for the overall strategic direction and development of the group, Lee was one of the founding directors of the company.

 
He has over 38 years of experience in the manufacturing, assembly/servicing and precision engineering industries, beginning his career in 1982 as a machinist in Pan-World Precision Engineering.

 
On Jun 15, GVT executive director and CEO Julian Ng Wai Yuen also acquired 10,000 shares at an average price of 76.5 cents per share. This increased his direct interest in the company from 3.54 per cent to 3.55 per cent. Ng has more than 20 years of experience in the manufacturing and precision engineering industries.

 
In early May, GVT reported 19.5 per cent year-on-year growth in Ebitda and 8.9 per cent growth in net profit after tax for Q1 FY2022 (ended Mar 31), on the back of a 41.0 per cent revenue increase from S$23.0 million in Q1 FY2021 to S$32.5 million in Q1 FY2022.

 
Lee noted with the results that robust demand from the semiconductor industry saw GVT make good progress in its discussions with potential customers engaged in the manufacture of metrology and inspection, etching, and wafer deposition equipment. Lee added that when fully onboarded, these customers are expected to be the key drivers for the front-end semiconductor activities of GVT in the near future. In Q1 FY2022, the semiconductor sector contributed 67.2 per cent to the group’s total revenue, comparable with the 71.1 per cent contribution in FY21 and 68.7 per cent contribution in 2020.

 Oxley Holdings

 
Between Jun 14 and 15, Oxley Holdings executive director and deputy CEO Eric Low See Ching acquired 100,000 shares of the company at 17.1 cents per share.

 
Low maintains a 28.13 per cent direct interest in the firm and is responsible for the operation of the group including sales and marketing, project development, business development and financial management. He also assists the CEO in charting and executing strategic plans.

 Inside Insights is a weekly column on The Business Times, read the original version.



Buybacks surge, Mapletree’s Chua Tiow Chye adds to MIT stake

<p><em><strong>Non- SGX Report: These equity research reports are not written by the SGX.</strong>&nbsp;SGX supports the distribution of the research reports by external contributors. Please refer to the Disclaimer in the attached report.</em></p>
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<h2>GKE Corporation Limited</h2>
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<h3>Setback in China RMC business</h3>
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<p><strong>1H22 results missed our expectations.</strong> Revenue of S$55m and net profit of S$3.8m were 43% and 34% of our FY22 projection. The shortfall is attributed to a drop in RMC sales in China (-35% yoy). Net profit is lower due to smaller government support, higher salaried costs and allowance for expected credit loss (S$0.9m).</p>
<p><strong>Logistics business in Singapore is positioned for growth.</strong> In Q3 FY21, industry-wide occupancy rates for warehouse is up at 90.1% (Q2: 89.7%) and rental index have improved to 85.7 (Q2: 84.3). (JTC) Tightness in the market continues to boost warehouse utilization rate until new supply comes on stream. 378,000 sqm of warehouse space (3% of existing stock) is expected to be completed in 2022.</p>
<p><strong>Recent regulation caps the volume of dangerous goods (DG) that can be stored in each location.</strong> As such, customers have to decentralize the storage of their DG. To capitalize on this, GKE is converting its open yard at 39 Benoi Road, previously used to hold shipping containers, and 6 Pioneer Walk, for DG storage. The facilities are expected to be completed in end Feb and April respectively. 70% of storage capacity at 6 Pioneer Walk has already been taken up. DG returns are 3x that of general warehouse goods. Contributions will only materialize from FY23 as DG facilities require authorities’ certification to be operational.</p>
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Non- SGX Report: These equity research reports are not written by the SGX.&nbsp;SGX supports the distribution of the research reports by external contributors. Please refer to the Disclaimer in the attached report.




GKE Corporation Limited




Setback in China RMC business




1H22 results missed our expectations. Revenue of S$55m and net profit of S$3.8m were 43% and 34% of our FY22 projection. The shortfall is attributed to a drop in RMC sales in China (-35% yoy). Net profit is lower due to smaller government support, higher salaried costs and allowance for expected credit loss (S$0.9m).
Logistics business in Singapore is positioned for growth. In Q3 FY21, industry-wide occupancy rates for warehouse is up at 90.1% (Q2: 89.7%) and rental index have improved to 85.7 (Q2: 84.3). (JTC) Tightness in the market continues to boost warehouse utilization rate until new supply comes on stream. 378,000 sqm of warehouse space (3% of existing stock) is expected to be completed in 2022.
Recent regulation caps the volume of dangerous goods (DG) that can be stored in each location. As such, customers have to decentralize the storage of their DG. To capitalize on this, GKE is converting its open yard at 39 Benoi Road, previously used to hold shipping containers, and 6 Pioneer Walk, for DG storage. The facilities are expected to be completed in end Feb and April respectively. 70% of storage capacity at 6 Pioneer Walk has already been taken up. DG returns are 3x that of general warehouse goods. Contributions will only materialize from FY23 as DG facilities require authorities’ certification to be operational.













(Non-SGX Report) GKE Corporation Limited - Setback in China RMC Business

<p><em><strong>Non- SGX Report: These equity research reports are not written by the SGX.</strong>&nbsp;SGX supports the distribution of the research reports by external contributors. Please refer to the Disclaimer in the attached report.</em></p>
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<h2>GKE Corp Ltd</h2>
<h3>China slowdown an overhang</h3>
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<ul>
<li>1HFY5/22 net profit of S$3.8m (-42% yoy) was impacted by weaker China operations, with lower volumes and credit loss provision during the period.</li>
<li>Nevertheless, we expect further growth in Singapore’s logistics segment, with continued optimisation of warehouse yield and contribution from new M&amp;As.</li>
<li>ReiterateAdd,withalowerSOP-basedTPofS$0.16.</li>
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<h3>1HFY5/22 dragged down by weaker China operations</h3>
<p>GKE Corp’s 1HFY5/22 net profit of S$3.8m (-24% hoh, -42% yoy) was below our expectations, at 27% of our FY22 forecast. Excluding effects of government grants, 1H net profit declined 12% yoy. The miss was mainly due to weaker-than-expected China operations, which was hurt by lower ready-mix concrete (RMC) volumes, delayed commercialisation of its Cenxi plant, and a credit loss provision of S$0.9m. Meanwhile, its operations remained strong in Singapore, as warehouse utilisation remains optimal and demand for transportation services strong.</p>
<h3>Logistics segment continues to enjoy industry tailwinds</h3>
<p>Logistics segment’s 1HFY22 revenue/PBT rose 16%/19% yoy, driven by continued tenant mix optimisation and positive rental reversions. GKE’s warehouses remain fully utilised, and management is currently converting some open yard space into chemical storage areas to further optimise yield. We like the recent acquisition of Fair Chem (to be completed end-Feb 22), as it provides GKE with: 1) deeper technical expertise in the tolling and specialty chemical manufacturing business, 2) revenue synergies through cross-selling, and 3) expansion in warehouse capacity. The earnings-accretive S$12.5m acquisition was funded by cash, and we believe valuation is attractive at 7.4x trailing P/E.</p>
<h3>But we see tougher operating environment ahead in China</h3>
<p>We turn more cautious on the infrastructural materials segment in China and now forecast segment PBT to decline 45% yoy in FY22F, as we believe the near-term tight liquidity environment will impact the construction industry’s supply chain. GKE mentioned it is carefully monitoring the situation and has taken active steps to minimise credit risk exposure. GKE’s other initiatives in China are starting to contribute positively in 2HFY22F, including its waste material recycling plant (commenced operations in 2021 and contributed S$0.1m in share of associate profits in 1HFY22; likely to further ramp up in 2HFY22F) and limestone mining rights.</p>
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Non- SGX Report: These equity research reports are not written by the SGX.&nbsp;SGX supports the distribution of the research reports by external contributors. Please refer to the Disclaimer in the attached report.




GKE Corp Ltd
China slowdown an overhang





1HFY5/22 net profit of S$3.8m (-42% yoy) was impacted by weaker China operations, with lower volumes and credit loss provision during the period.
Nevertheless, we expect further growth in Singapore’s logistics segment, with continued optimisation of warehouse yield and contribution from new M&amp;As.
ReiterateAdd,withalowerSOP-basedTPofS$0.16.





1HFY5/22 dragged down by weaker China operations
GKE Corp’s 1HFY5/22 net profit of S$3.8m (-24% hoh, -42% yoy) was below our expectations, at 27% of our FY22 forecast. Excluding effects of government grants, 1H net profit declined 12% yoy. The miss was mainly due to weaker-than-expected China operations, which was hurt by lower ready-mix concrete (RMC) volumes, delayed commercialisation of its Cenxi plant, and a credit loss provision of S$0.9m. Meanwhile, its operations remained strong in Singapore, as warehouse utilisation remains optimal and demand for transportation services strong.
Logistics segment continues to enjoy industry tailwinds
Logistics segment’s 1HFY22 revenue/PBT rose 16%/19% yoy, driven by continued tenant mix optimisation and positive rental reversions. GKE’s warehouses remain fully utilised, and management is currently converting some open yard space into chemical storage areas to further optimise yield. We like the recent acquisition of Fair Chem (to be completed end-Feb 22), as it provides GKE with: 1) deeper technical expertise in the tolling and specialty chemical manufacturing business, 2) revenue synergies through cross-selling, and 3) expansion in warehouse capacity. The earnings-accretive S$12.5m acquisition was funded by cash, and we believe valuation is attractive at 7.4x trailing P/E.
But we see tougher operating environment ahead in China
We turn more cautious on the infrastructural materials segment in China and now forecast segment PBT to decline 45% yoy in FY22F, as we believe the near-term tight liquidity environment will impact the construction industry’s supply chain. GKE mentioned it is carefully monitoring the situation and has taken active steps to minimise credit risk exposure. GKE’s other initiatives in China are starting to contribute positively in 2HFY22F, including its waste material recycling plant (commenced operations in 2021 and contributed S$0.1m in share of associate profits in 1HFY22; likely to further ramp up in 2HFY22F) and limestone mining rights.













(Non-SGX Report) GKE Corp Ltd - China Slowdown an Overhang

<p><em><strong>Non- SGX Report: These equity research reports are not written by the SGX</strong>.&nbsp;SGX supports the distribution of the research reports by external contributors. Please refer to the Disclaimer in the attached report.</em></p>
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<h2>GKE Corporation Limited</h2>
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<h3>Building up balance sheet, brick by brick</h3>
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<p><strong>Good FY21, expect to continue into FY22.</strong> Revenue and profit were 1.9%/2.7% below our estimates, with lower-than-expected revenue due to reduction in sales from aviation sector customers, and higher-than-expected ECL allowance posted. Revenue saw a 10.9% increase yoy from S$107.3m to S$119.0 million in FY21 ended 31 May, with the higher revenue supported by i) higher utilisation of warehouse space at better rental rates; ii) increase in trucking volume, and iii) higher revenue from ready-mix concrete plant. Gross margin increased from 20.4% to 24.1%.</p>
<p>The Group also booked one-off S$2.5m gain on disposal of 65% stake in Van Der Horst Logistics and its subsidiary, and G-Chem Logistics. Overall FY21 PATMI surged by 2.5x from S$4.7m to S$11.5m. GKE declared a 0.40 Singapore cent dividend, a first in five years.</p>
<p><strong>Total capacity for RMC plants sitting at 1.6 million m3.</strong> In FY21, the Wuzhou Xing Jian and the Cenxi Xing Jian RMC plants added 400,000 m3 each, doubling production capacity from 0.8 million m3 before FY21 to 1.6 million m3. Combined fleet of concrete mixer trucks for both Wuzhou and Cenxi Xing Jian have increased from around 40-50 to 70.</p>
<p><strong>Revise our estimates.</strong> We revised FY22E/FY23E revenue estimates down 5.9% and 8.8% to S$127.6m and S$136.3m respectively on cautious optimism, with China’s strengthening of commodity price controls which could cap RMC sale prices. This translates to an overall +7.2%/+6.8% yoy revenue growth. However, we remained optimistic on the stability of the warehousing logistics segment, and the growth potential of the infrastructural segment. As start-up capital costs for Cenxi’s RMC plant had been accounted for in FY21, we lower our capex forecasts for FY22 and FY23.</p>
<p><strong>Maintain BUY rating at higher target price of S$0.171 (from S$0.163).</strong> Our DCF-derived target price translates into a FY22E/FY23E P/E of 11.8x and 11.1x respectively. We expect high warehouse utilization rates to remain in FY22 as a significant portion are for medical supplies, with which demand would likely not waver in the short-term. Higher production capacity will increase Group’s infrastructural segment contribution in the face of sustained demand. Our target price implies a 17.1% upside to the last traded price.</p>
<p><strong>Key Risks</strong>: Short expiry contract terms for warehousing segment, China commodity price controls</p>
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GKE Corporation Limited




Building up balance sheet, brick by brick




Good FY21, expect to continue into FY22. Revenue and profit were 1.9%/2.7% below our estimates, with lower-than-expected revenue due to reduction in sales from aviation sector customers, and higher-than-expected ECL allowance posted. Revenue saw a 10.9% increase yoy from S$107.3m to S$119.0 million in FY21 ended 31 May, with the higher revenue supported by i) higher utilisation of warehouse space at better rental rates; ii) increase in trucking volume, and iii) higher revenue from ready-mix concrete plant. Gross margin increased from 20.4% to 24.1%.
The Group also booked one-off S$2.5m gain on disposal of 65% stake in Van Der Horst Logistics and its subsidiary, and G-Chem Logistics. Overall FY21 PATMI surged by 2.5x from S$4.7m to S$11.5m. GKE declared a 0.40 Singapore cent dividend, a first in five years.
Total capacity for RMC plants sitting at 1.6 million m3. In FY21, the Wuzhou Xing Jian and the Cenxi Xing Jian RMC plants added 400,000 m3 each, doubling production capacity from 0.8 million m3 before FY21 to 1.6 million m3. Combined fleet of concrete mixer trucks for both Wuzhou and Cenxi Xing Jian have increased from around 40-50 to 70.
Revise our estimates. We revised FY22E/FY23E revenue estimates down 5.9% and 8.8% to S$127.6m and S$136.3m respectively on cautious optimism, with China’s strengthening of commodity price controls which could cap RMC sale prices. This translates to an overall +7.2%/+6.8% yoy revenue growth. However, we remained optimistic on the stability of the warehousing logistics segment, and the growth potential of the infrastructural segment. As start-up capital costs for Cenxi’s RMC plant had been accounted for in FY21, we lower our capex forecasts for FY22 and FY23.
Maintain BUY rating at higher target price of S$0.171 (from S$0.163). Our DCF-derived target price translates into a FY22E/FY23E P/E of 11.8x and 11.1x respectively. We expect high warehouse utilization rates to remain in FY22 as a significant portion are for medical supplies, with which demand would likely not waver in the short-term. Higher production capacity will increase Group’s infrastructural segment contribution in the face of sustained demand. Our target price implies a 17.1% upside to the last traded price.
Key Risks: Short expiry contract terms for warehousing segment, China commodity price controls













(Non-SGX Report) GKE Corporation Limited: Building up Balance Sheet, Brick by Brick

<p><em><strong>Non- SGX Report: These equity research reports are not written by the SGX.</strong>&nbsp;SGX supports the distribution of the research reports by external contributors. Please refer to the Disclaimer in the attached report.</em></p>
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<h2>GKE Corp Ltd</h2>
<h3>Doubling down in China</h3>
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<li>GKE announced record profit of S$11.5m (+146% yoy) for FY21, riding on optimal warehouse occupancy in SG and elevated RMC demand in China.</li>
<li>GKE is counting on China as its next leg of growth; RMC capacity is set to double in CY22F. New initiatives there to contribute positively by 2HFY22F.</li>
<li>Near term growth in SG to be capped by capacity constraints. GKE is on the lookout for M&amp;A opportunities. We reiterate our Add call with a TP of S$0.21.</li>
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<p><strong>FY5/21 a record year</strong><br>FY21 was a record year for GKE, with net profit of S$11.5m (+145% yoy). Stripping out one-off items, core net profit of S$10.3m (+120% yoy) was below at 91% of our FY21F forecasted S$11.3m, due to higher-than-expected increase in admin expenses. Dividend payout was reinstated for the first time since FY16, DPS of 0.4 Scts (28% dividend payout ratio) was higher than our projected 0.28 Scts and implies some 2.8% dividend yield.</p>
<p><strong>China: Rapid capacity expansion in CY22F</strong><br>We forecast China operations to see 60% PBT growth in FY22F to S$15.6m. GKE’s ready-mix concrete (RMC) capacity will be effectively doubled to 1.6m m3 per annum by end-1H22F, with the production line added in Wuzhou city, Guangxi (1QCY21) and commencement of production in Cenxi city, Guangxi (3QCY21). We believe this will allow GKE to better tap on the continued robust demand for construction materials there, as fixed asset investments in Wuzhou grew 25% yoy YTD. Management also expects new initiatives (construction waste material recycling plant and limestone mining) to contribute positively from 2HFY22F onwards.</p>
<p><strong>Singapore: FY22F a year of margin expansion</strong><br>Warehouse utilisation remains optimal due to stockpiling by customers, and rental rates trended higher thanks to further optimisation of GKE’s tenant mix. GKE obtained Good Distribution Practices (GDP) certification for two of its warehouses, which allows for storage of pharmaceutical products – we believe this could enhance its chances of renewing government’s strategic stockpile contract by year end. GKE remains on the lookout for additional space. Looking into FY22F, we think that Singapore operations could see PBT rise to S$7.3m (+7% yoy). We believe that cost savings from lease renewal (effective Apr 21) and acquisition of remaining 30% stake in Marquis Services (FY21: c.S$2m net profit) could more than offset decline in government grants.</p>
<p><strong>Reiterate Add with a TP of S$0.21</strong><br>Reiterate Add. We lower our FY22F-23F EPS by 1.5-4.5% to account for the commencement delay of Cenxi plant. Our SOP-based TP is kept at S$0.21, implying 10.3x CY22F P/E. Potential re-rating catalysts include further recovery in Singapore’s port container throughput and earnings accretive M&amp;A. Downside risks include a longer- than-expected path to profitability for GKE’s new growth initiatives.</p>
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Non- SGX Report: These equity research reports are not written by the SGX.&nbsp;SGX supports the distribution of the research reports by external contributors. Please refer to the Disclaimer in the attached report.




GKE Corp Ltd
Doubling down in China





GKE announced record profit of S$11.5m (+146% yoy) for FY21, riding on optimal warehouse occupancy in SG and elevated RMC demand in China.
GKE is counting on China as its next leg of growth; RMC capacity is set to double in CY22F. New initiatives there to contribute positively by 2HFY22F.
Near term growth in SG to be capped by capacity constraints. GKE is on the lookout for M&amp;A opportunities. We reiterate our Add call with a TP of S$0.21.






FY5/21 a record year FY21 was a record year for GKE, with net profit of S$11.5m (+145% yoy). Stripping out one-off items, core net profit of S$10.3m (+120% yoy) was below at 91% of our FY21F forecasted S$11.3m, due to higher-than-expected increase in admin expenses. Dividend payout was reinstated for the first time since FY16, DPS of 0.4 Scts (28% dividend payout ratio) was higher than our projected 0.28 Scts and implies some 2.8% dividend yield.
China: Rapid capacity expansion in CY22F We forecast China operations to see 60% PBT growth in FY22F to S$15.6m. GKE’s ready-mix concrete (RMC) capacity will be effectively doubled to 1.6m m3 per annum by end-1H22F, with the production line added in Wuzhou city, Guangxi (1QCY21) and commencement of production in Cenxi city, Guangxi (3QCY21). We believe this will allow GKE to better tap on the continued robust demand for construction materials there, as fixed asset investments in Wuzhou grew 25% yoy YTD. Management also expects new initiatives (construction waste material recycling plant and limestone mining) to contribute positively from 2HFY22F onwards.
Singapore: FY22F a year of margin expansion Warehouse utilisation remains optimal due to stockpiling by customers, and rental rates trended higher thanks to further optimisation of GKE’s tenant mix. GKE obtained Good Distribution Practices (GDP) certification for two of its warehouses, which allows for storage of pharmaceutical products – we believe this could enhance its chances of renewing government’s strategic stockpile contract by year end. GKE remains on the lookout for additional space. Looking into FY22F, we think that Singapore operations could see PBT rise to S$7.3m (+7% yoy). We believe that cost savings from lease renewal (effective Apr 21) and acquisition of remaining 30% stake in Marquis Services (FY21: c.S$2m net profit) could more than offset decline in government grants.
Reiterate Add with a TP of S$0.21 Reiterate Add. We lower our FY22F-23F EPS by 1.5-4.5% to account for the commencement delay of Cenxi plant. Our SOP-based TP is kept at S$0.21, implying 10.3x CY22F P/E. Potential re-rating catalysts include further recovery in Singapore’s port container throughput and earnings accretive M&amp;A. Downside risks include a longer- than-expected path to profitability for GKE’s new growth initiatives.












(Non-SGX Report) GKE Corp Ltd: Doubling Down in China

Singapore

GKE Corp. Ltd. operates as an integrated logistics solutions provider. The Company offers one-stop, door-to-door multi-modal solutions for supply chain management.

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GKE Corp Ltd (GKEC SP)

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(Non-SGX Report) GKE Corp Ltd - China Slowdown an Overhang

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(Non-SGX Report) GKE Corporation Limited: Building up Balance Sheet, Brick by Brick

Non- SGX Report: These equity research reports are not written by the SGX. SGX supports the distribution of the research reports by external...

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(Non-SGX Report) GKE Corp Ltd: Doubling Down in China

Non- SGX Report: These equity research reports are not written by the SGX. SGX supports the distribution of the research reports by external...

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