George Kent: 2 significant contracts

In the span of few days, George Kent announced 2 new contracts that probably will enhance its group's earning moving forward.

The first one was the LRT 3 contract awarded by Prasarana Malaysia Berhad. The group and their JV partner, MRCB are the Project Delivery Partner (PDP) to build the LRT 3 from Bandar Utama to Johan Setia.

Total development cost is around RM9 billion. Construction work will begin in early 2016 and expected to be completed in Aug 2020. The JV will get 6% management fees. So, George Kent probably will get around RM270 million for the whole project, which translated into around RM45 million annually.

I not sure whether this RM45 million is considered as operating profit or net profit. To recap, the group's net profit for the past 3 financial years was RM25mil, RM36mil and RM28 million respectively. Nevertheless, the annual RM45 million from the said project will contributed significantly to the group's bottom line.

The second contract was the delivery of 600k units of water meters to Water Supplies Department (WSD), Hong Kong over the next 2 years for a total sum of USD7.17 million which is roughly RM31 million.

From the press release, the group stated that this contract is the largest single order for the water meters division which further enhance their reputation in the meter industry. The meters will be delivered in 24 batches and the first shipment is in Oct 2015.

In another statement, the group anticipated the contract will contribute around 0.29 sen for financial year end 2016. That's 4 months contribution since the first batch is to be delivered in Oct.

0.29 sen is equivalent to RM871k in 4 months. So, estimate  the 2-year contract will contribute RM5.2 million to the group's bottom line assumed the delivery is constant throughout the years.

Ignore the USD fluctuation, profit margin will be 5.2/31 = 16.7%. Strengthening of RM against USD of course will affect the earning.

So moving into next year,earning will be quite certain unless there is delay in the construction work for the LRT 3 project. 

For the rest of the current financial year, do not forget the contribution from the Ampang extension line and the stable contribution from the meter division. 

George Kent: Q1FY16 update

George Kent just released its first quarter result last week. 

The group recorded lower revenue compared to same quarter preceding year and almost half if compared to previous quarter. 

But thanks to its much better gross profit margin, the group able to record better bottom line. 

Operating income and expenses almost similar. 

No dividends was declared. 

In terms of balance sheet, both trade receivables and payables also dropped. 

Good thing is the group able to reduce its loan amount to almost same as one year before. 

From the cash flow statement, it can be seen that the group generated a very healthy operating cash flow. Since its manufacturing segment only required very low amount of capex, the group chalked up a very good free cash flow. 

Here comes with the interesting part, segment reporting. 

For its manufacturing segment, I would love to see the segment able to maintain above 20% operating profit margin. That would be a very good improvement from 15% (FY2014) and 19% (FY2015). Management pointed out that it was due to lower operating expenses incurred. But I guess for manufacturing industry, normally the management able to reduce the operating expenses to certain extend only and maintain from there. 

For its engineering segment, management pointed out that the gross profit margin is higher due to higher weightage on revenue from certain projects with relatively higher profit margin and the Group’s Kuala Lipis Hospital Project has just started. However, the contribution of the hospital project is quite low. 

I believe the higher profit margin of the engineering segment is not sustainable due to the nature of the revenue recognition of contract based projects just like what happened in Q4FY14. It's still highly depends on the Ampang line LRT extension project. 

Dato Tan pointed out that there was delay in Ampang Line LRT extension project. However, Prasarana CEO stated days later that there was no delay and the phase 1 is on track and will begin operation in Oct 31 2015. So, who should we trust?

Besides, Dato Tan also mentioned the group target to add another RM2 or RM3 billion worth of contracts this year on top of RM1 billion orderbook on hands. I think we should ignore this kind of blow water issue. I still remember he said the same thing during last year AGM on top of gonna diversify into oil & gas segment. 

Well, I think he did not expect the sudden drop in crude oil price at the end of last year which indirectly affected the numbers of construction jobs awarded. 

The biggest surprise to me about George Kent is ColdEye bought the counter recently as shown in the latest annual report. 

He must have a very good reason to buy. Should I follow? :)

George Kent: Highly depend on Ampang Line LRT project

George Kent Berhad just released its 4th quarter result yesterday.

Revenue and net profit for Q4FY15 dropped tremendously compared to Q4FY14 as there was slight delay for the Ampang Line LRT project. 

Profit margin increased as contribution of meter segment was higher in this quarter due to lack of progress in the engineering division that fetches lower margin. 

Full year revenue and net profit also dropped. Signal a 3-year growth in terms of revenue and net profit to an end. 

Looking at its balance sheet prompt more questions. 

Inventories increased close to 30%. This was probably from its meter division. 

Trade receivables increased close to 68%. This is big, considered that its revenue for the financial year dropped. Furthermore, the amount of increase (~RM98m) was 2 times its FY2015 net profit. 

Reading in conjunction with the cash flow statement, it's no surprise that it recorded a negative operating cash flow due to high outflow of working capital.  Although its capex is small, the group still need to take up some borrowings to pay dividends and for investing activities. 

As a result of that, cash balance reduced while borrowings increased. 

It may not be a red flag as it may be a temporarily situation to solve its liquidity problem. One need to monitor for few quarters more to make judgement. 

Metering segment recorded lower revenue and net profit compared to corresponding quarter.

I'm little bit surprised that its Metering segment showed a poorer performance. I expected there would be growth as the management mentioned they are able to get contracts from Singapore PUB and Vietnam in previous quarters. Throughout these 4 quarters, it's noted that this division able to chalk up stable average RM4-5 millions operating profit quarterly. 

The management combined the Construction and and Infrastructure segment together to form an Engineering division for segmental reporting beginning from this quarter. 

This Engineering segment is my only concern all this while as it highly depends on the Ampang Line Extension project. The contribution of Kuala Lipis Hospital project is quite negligible. Management mentioned there was a rescheduling of the work components for the project. So the group was not able to conduct their work, no work progress, so no revenue was recorded. 

Sad thing is it did not mention why there was a rescheduling and when it will resume. Boss, this is most important. 

Elsewhere, the director also mentioned they are exploring opportunity in Philippines and Indonesia for its Metering segment as they started to deliver in small quantity there. 

And there is rumour that they are able to get the job for the Railway 3 project. But it's better not to trust this kind of articles. Haha

I still quite fond of its Metering segment, but the Engineering segment will drag the group's performance down if the work did not resume and no new contracts was awarded. 

I will keep it in my watchlist. 

George Kent: Email Exchange with IR regarding Q3FY15

Regarding the latest quarter performance of George Kent group, I dropped an email to their IR representative and glad that they replied me few days ago. Below are the details. 


1) The revenue and net profit from Manufacturing and Trading segment for the latest quarter (Q3FY15) were lower than corresponding quarter (Q3FY14). What is the reason behind for this drop as the new contracts from Vietnam and Singapore should help to lift up its performance?

Whilst sales to Vietnam and Singapore helped to lift the revenue for Meters sales, lower OEM sales and the change in presentation of sales of scrap contributed to the lower revenue for Manufacturing and Trading segment.

2) At the third paragraph of the press release, it's written that

"For its cumulative 3 quarters of FYE2015, the Group reported cumulative revenue of RM235.9 million. Higher revenue of Meters was achieved by the Manufacturing and Trading Division, contributed by new contracts secured in Vietnam and Singapore"

From the data on the quarter report, manufacturing and trading segment recorded only RM71.8mils revenue for cumulative 3 quarters of FY2015 while recorded RM84.4mils revenue for cumulative 3 quarters of FY2014. How come the press release would stated that higher revenue of meters was achieved?

The press release commented on Revenue, not Profit. It is true that the cumulative Revenue of the Manufacturing & Trading segment is lower as highlighted by the shareholder above. However, the press release merely highlighted that Meters sales (one of the revenue sources) were higher, which is true. However, OEM sales, another revenue source within the Manufacturing & Trading segment were lower. In addition, sales of scrap for tolling purposes were no longer reported as Revenue but the profit thereof were set off against cost of sales. This change in presentation also contributed to the overall drop in revenue.

3) When will the construction works of the Phase II of Kuala Lipis Hospital begins?

The construction works for Phase II of the Kuala Lipis Hospital has begun in November 2014.

4) Regarding the order book for the construction segment, is that the group only left construction works from Ampang LRT Line Extension project and the newly awarded Kuala Lipis Hospital project?

The current order book for the construction segment consist of the Ampang LRT line, Kuala Lipis Phase II and Mengkuang dam project however; GKENT is actively bidding for other projects to replenish their order book.

5) With the current drop in crude oil price, what is the effect on the group's performance on Meters sales and Construction work tender rate?

We do not foresee any impact on the Group’s performance and tender rate.

6) During the latest AGM, Mr Tan also mentioned that the group is looking to diversify into oil & gas industry. Is that any update on this?

This is currently still in the exploratory stage as the Group is still reviewing their options.


So, the construction segment still highly depends on its Ampang LRT line extension as the contribution from the Kuala Lipis Hospital project is quite small. For its manufacturing & trading segment, I am quite interested to see how they can double their sales as mentioned by the management or only paper talk.

Regarding the venture into oil & gas as mentioned by Mr Tan during the last AGM that caused a spike, I think it's cooler than water now.

George Kent: Another Stable Quarter

With the recent red sea market, I guess there is not much people having the mood to read quarter report release. Well, my thinking is that instead of looking at the stock price frequently, why not take a book/course to upgrade yourself or look through the companies to find any potential gems since the price now is getting more attractive unless you want to buy/sell your counters. 

Okay, back to the post. George Kent always in my watch list and gone through ups & downs in terms of stock price throughout the past few months. The group just released its Q3FY2015 report yesterday. 

Higher revenue but flat net profit if compare to corresponding quarter last year. This was due to higher contribution from its construction segment that fetched far lower profit margin. 

EPS was diluted due to the bonus issue of 1-3 that just completed months ago. 

For the cumulative 9 months period, the group net profit increased from RM17.7 mils to RM19.8 mils, which showed around 11.8% improvement. 

In terms of dividend, the group so far announced 3.2 cents dividend compared to 3.0 cents last year (Ex-bonus issue). Thus, in terms of dividend in dollar, it was almost 42% increases!

What surprised me is that its manufacturing segment had showed a drop in performance. I expect this segment will keep on improving since it mentioned that they had secures new contracts from Vietnam and Singapore for their meter products. 

The management also failed to explain the reason behind this performance drop in quarter report and press release. I dropped an email to their IR and hopefully they will reply me soon. 

For its construction segment, there is steady contribution from its Ampang LRT line extension project. As far as I know, the group's current construction order book is only left the Ampang LRT line extension job and the newly awarded Kuala Lipis Hospital projects but the group only recognised 1/3 of the Ampang LRT line RM1.08 bil project. So, it's still okay for me at this moment. 

For its balance sheet, nothing much special to mention other than the increases in trade receivables and trade payables. Will monitor on next quarters. 

So, another stable quarter for me. But with the recent drop in crude oil price, it's directly affected our government's budget and expenditures and so does the construction job orders. 

Hopefully a better meter manufacturing performance and a good dividend payout ( Currently DY >5% )