PETALING JAYA: The slow construction work progress of the RM11.4bil LRT3 project, which George Kent (M) Bhd has a 50% stake in, could take a toll on the group’s earnings performance.
Kenanga Research said works were supposed to commence by the fourth quarter of this year.
“Since the renegotiation with the government to change the project structure from project delivery partner model to ‘fixed price contract’ basis in January 2019, there have been little developments on the outcome of its review with work package contractors for the previously awarded contracts, as works were initially targeted to resume in the fourth quarter of 2019, ” it said in a report.
“In the meantime, the group is taking the initiatives to grow its metering business with the signing of a long-term licence agreement with Honeywell in June this year to manufacture high-precision water meter measuring components with exclusive rights to sell these water meters to 26 territories.”
George Kent’s net profit for its third quarter ended Oct 31,2019 halved to RM10.26mil from RM20.55mil in the previous corresponding period, due to lower revenue contribution from its engineering and construction division.
Revenue in the third quarter dropped to RM72.91mil from RM103.55mil a year earlier.
For the nine months ended Oct 31,2019, net profit dipped to RM34.82mil from RM66.67mil in the previous corresponding period, while revenue fell to RM253.41mil from RM316.25mil a year earlier.
Following the results, Kenanga Research has slashed its 2020 and 2021 earnings by 25% and 36%, respectively, after factoring in lower revenue recognition and slimmer margins.
“We have trimmed our sum-of-parts derived target price to 97 sen from RM1.15 mainly on the back of our earnings revisions. We have pegged price-to-earnings ratio of 7.1 times for the engineering business and 8 times for the metering segment on their respective 2021 earnings, ” said the research house.
In its notes accompanying its third quarter earnings, George Kent said the group would further accelerate growth by substantially increasing its investments in rail and water-related projects through mergers and acquisitions and strategic partnerships.
On the prospects of its engineering division, the group said it would continue to seek opportunities in the regional railway space, leveraging on its expertise as rail systems integrator in domestic railway projects and its established network with global rail specialists.
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