GKE Corporation has reported earnings of $4.3 million for the FY2024 ended May 31, 10.1% higher y-o-y.

 

Earnings per share (EPS) stood at 0.56 cents.

 

Revenue rose by 1.5% y-o-y to $110.6 million. The warehousing and logistics segment in Singapore, comprising the relatively higher-margin specialty chemicals, dangerous goods, pharmaceuticals, electronics supply chain management solutions and services contributed to the higher revenue and earnings, which were offset by the group&rsquo s freight and infrastructural materials and services, which faced headwinds during the year. According to GKE Corporation 595 -1.3% , revenue from one major customer of $14.5 million arose from services provided by the warehouse and logistics segment.

 

Gross profit rose by 2.7% y-o-y to $32.5 million while gross profit margin (GPM) rose by 0.4 percentage points y-o-y to 29.4%.

 

Profit before tax, however, fell by 1.8% y-o-y to $6.8 million.

 

During the year, the group declared a final dividend of 0.2 cents per share, unchanged y-o-y.

 

&ldquo We have been prudent and conscientious in the management of our resources amid the challenging economic and business environment in FY2024. This set of results reflected the payoff of our prior investments and efforts to improve our assets and broaden our value-adding solutions and services in our core integrated warehousing and logistics segment. We have now achieved a stable and sustainable foundation for the group,&rdquo says Neo Cheow Hui, CEO and executive director of GKE.

 

&ldquo We believe that our ability to maintain our growth momentum, even if only modestly, is commendable. While our strategic infrastructural materials and services business in China experienced a downturn, our group has managed to stay on course and remain profitable with small improvements,&rdquo he adds. &ldquo We will maintain tight reins over our operations in Singapore and China and be ready to seize growth-enhancing opportunities, as we wait for the macroeconomic situation to improve.&rdquo

 

As at May 31, the group&rsquo s net asset value (NAV) per share was 12.22 cents.

 

The proposed final dividend will be paid on Oct 25.

 

Cybersecurity incident

 

In a separate release, GKE said it was the subject of a ransomware incident. According to the group, an unknown party gained unauthorised access to the group&rsquo s servers.

 

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&ldquo Upon discovering the incident, the group took immediate action to identify, contain and remediate the affected servers. The group has also reported the incident to the relevant authorities. The group is still currently assessing the situation,&rdquo says the group.

 

&ldquo As of the date of this announcement, the group had activated its business continuity plan and customers have continued to be served with minimal disruption,&rdquo it adds.

Logistics provider GKE Corporation   has posted earnings of $1.9 million for the 1HFY2024 ended Nov 30, 2023, a 90.1% y-o-y increase compared to its $998,000 earnings for the same period last year.

 

The improved earnings came from strategic investments in infrastructural materials and services in China and agriculture in Singapore, bolstered by stable contributions from the company&rsquo s warehousing and logistics segment in Singapore, particularly in the chemical-related business.

 

Its wholly-owned subsidiary Fair Chem Industries posted an increase in revenue of $1.3 million in 1HFY2024, with improved margins.

 

Overall, GKE recorded a revenue of $55.5 million, up 2.1% y-o-y, with its cost of sales increasing slightly by 0.7% to $39.0 million.

 

Gross profit was up 5.6% y-o-y to $16.5 million, while gross profit margin improved by 1 percentage point to 29.7% for the period.

 

As a result, earnings per share increased to 0.25 cents for 1HFY2024, compared to 13 cents in 1HFY2023.

 

GKE&rsquo s cash and cash equivalents stood at $26.8 million as at Nov 30, 2023.

 

Neo Cheow Hui, CEO and executive director of GKE, says: &ldquo Our effort in enhancing our assets in Singapore to maximise our competencies to provide higher value-adding solutions and services to our customers and broadening potential earnings at the same time, is a continuous challenge we have for ourselves.&rdquo

 

&ldquo The stability in our Singapore and China operations demonstrated in the 1HFY2024 results is a boon to the group," says Neo.

 

" However, we remain steadfast in achieving stable and sustainable growth for the long term and continue to stay prudent in the management of our resources to ride through the uncertain times.

 

" Meanwhile, we will continue to monitor the progress of our infrastructural materials and services segment in Guangxi, China, and conduct regular credit risk assessment to safeguard our interest," he adds.

 

GKE Corp' s warehousing and logistics business did better but weakness in its building materials business in China dragged overall earnings for FY2023 down by 16.9% y-o-y to $3.91 million. For this full year ended May 31, the company recorded a revenue of $108.9 million, up 3.9% y-o-y. It plans to pay a final dividend of 0.2 cents per share, unchanged from the previous year.

 

GKE' s warehousing and logistics business, largely Singapore-based, reported revenue of $86.3 million for FY2023, up 15.6% over FY2022, thanks partly to contribution from newly acquired Fair Chem Industries.

 

On the other hand, its China-based business of supplying ready-mixed concrete suffered a 26.3% drop in revenue to $22.1 million, amid a wider slowing business climate.

 

GKE operates a third business segment, indoor farming, which generated revenue of $612,000, versus $228,000 recorded in the preceding FY2022.

 

&ldquo We are heartened to have emerged from the pandemic with a stronger foundation, where we are geared towards supporting our customers with higher value-adding solutions and services in our core integrated warehousing and logistics businesses," says executive director and CEO Neo Cheow Hui.

 

He says the company' s bid to expand into the provision of handling and storage of dangerous goods such as pharmaceuticals and chemicals has paid off, bringing in better margins.

 

See also: Mapletree Industrial Trust reports DPU of 3.39 cents for 1QFY2023, 2.9% lower y-o-y

 

" Our continuous pursuit of advancing our competencies in handling and storage of cargoes in niche and specialised industries has won us a favourable market position and kept our warehouses at high occupancy rates," says Neo.

 

Meanwhile, he is optimistic that the challenges facing the company' s China-based business " will come to pass" .

 

" We remain mindful of our expansion plans and management of resources given the current economic conditions and inflationary pressure," says Neo.

 

CGS-CIMB Research analysts Kenneth Tan and Ong Khang Chuen are keeping their &ldquo hold&rdquo call on GKE Corp 595 0.00% as they are expecting the company&rsquo s financial results for the FY2024 ending May 31, 2024, to remain weak.

 

In the same vein, Tan and Ong have lowered their target price on the company to 7 cents from 9 cents previously.

 

GKE Corp will be releasing its results for the 2HFY2023 and FY2023 ended May 31 in the last week of July. While the analysts estimate that the company&rsquo s 2HFY2023 results will see improvement with a 64% y-o-y growth and 46% h-o-h improvement to a net profit of $1.5 million, they also see that its earnings are likely to have bottomed in FY2023.

 

During the 1HFY2023 ended Nov 30, 2022, GKE Corp&rsquo s earnings &ndash or net profit &ndash plunged 73.8% y-o-y to $998,000. Its profit before tax, too, fell by 61.0% y-o-y to $2.2 million. At the time, the lower earnings were due to lower contributions from the company&rsquo s infrastructural materials and services segment which was dealing with China&rsquo s zero-Covid policy at the time. The lower figure was also due to a reversal of foreign exchange (forex) gains in 1HFY2022 and the increase in the allowance of expected credit loss for receivables in its China operations.

 

This time, GKE Corp&rsquo s 2HFY2023 results are likely to be driven by increased contribution from its higher-margin Singapore initiatives.

 

&ldquo [The company&rsquo s] Singapore operations likely showed stable earnings growth in 2HFY2023, with room for further upside in FY2024 via expansion of its dangerous goods (DG) product mix,&rdquo the analysts write.

The company is also expected to report six months&rsquo worth of contribution from its specialty chemicals subsidiary Fair Chem. Fair Chem was acquired by the company in December 2021 for $12.5 million. GKE&rsquo s segment profit before tax (PBT) for 2HFY2023 should come in at around $6.0 million, up 53% y-o-y and 4% h-o-h, the analysts write.

 

In addition, they note that the company&rsquo s Singapore warehousing and logistics segment should do well with further rental reversions. According to JTC, Singapore&rsquo s rental rates for warehouses rose by 9.4% y-o-y and 2.9% q-o-q in the 1Q2023. Average occupancy remained flat y-o-y at 90.3%.

 

Meanwhile, the pace of recovery in the company&rsquo s segments in China is expected to remain uncertain, in line with the uncertain pace of recovery in the country&rsquo s construction activities.

 

The analysts also note that the Chinese property market still remains sluggish with the China Real Estate Information Corporation (CRIC) estimating that sales of the top 25 Chinese developers fell 12% m-o-m in May. The CRIC is one of the largest real estate brokers in China.&rdquo

 

&ldquo According to our China property analyst, ongoing weakness in property sales can likely be attributed to: [a] sluggish post-Covid-19 economic recovery in China, high unemployment levels, and reduced income levels in China,&rdquo say Tan and Ong.

 

&ldquo Based on our recent chat with GKE&rsquo s management, we understand that GKE remains cautious on the pace of recovery for its China ready-mix concrete (RMC) business. While we believe its RMC segment turned PBT positive in 2HFY2023 on better volumes and lower credit costs, we cut FY2024 - FY2025 segment PBT by 11% - 19% as the pace of recovery remains uncertain, in our view,&rdquo they add.

 

In addition to their lowered target price, Tan and Ong have cut their earnings per share (EPS) estimates for FY2024 to FY2025.

 

&ldquo We maintain &lsquo hold&rsquo until we see clearer signs of a recovery in China construction activities. Our sum-of-the-parts (SOTP)-based target price is reduced to 7 cents given the EPS cuts,&rdquo they write.

 

To them, a faster-than-expected recovery in China&rsquo s construction sector is a catalyst for the company&rsquo s earnings while downside risks include higher credit losses and a prolonged turmoil in China&rsquo s property market.

Neo Cheow Hui, CEO of logistics and building materials company GKE Corp 595 0.00% , last week raised his stake in the company. On June 6, Neo acquired 300,000 shares on the open market for 7 cents each. This gives him a total interest of 28.75 million shares, equivalent to 3.7% of the company, up from 3.67%. As at Nov 30, the company&rsquo s net asset value was 11.6 cents per share.

 

GKE Corp&rsquo s two main businesses have seen uneven performance in recent years. On the one hand, its warehousing space here in Singapore is enjoying strong demand as customers stock up to ward off supply chain disruptions. On the other hand, its ready-mixed concrete plants, based in China, suffered from lower demand amid the pandemic.

 

Weighed down by sales in China

 

On Jan 12, the company reported earnings in 1HFY2023 ended Nov 30, 2022 dropped 73.8% y-o-y to $1 million from $3.81 million in 1HFY2022. Revenue was largely unchanged at $54.7 million versus $55 million a year ago. In terms of business segments, sales from logistics increased by 19.8% y-o-y to $43.3 million while sales from China were down 40.4% y-o-y to $11.2 million.

 

Besides lower sales from operations in China in 1HFY2023, the company had to increase the allowance for expected credit loss for receivables over there. The bottom line was also hurt by unfavourable forex movements. &ldquo We will continue to work towards striking a balance and building a sound foundation for the two diverse business segments in two different countries,&rdquo says Neo in his earnings commentary.

 

Elsewhere, Indonesia-based coalminer Geo Energy Resources RE4 2.17% resumed its share buybacks. On June 6, the company acquired 800,000 shares on the open market at between 23 cents and 24 cents each under a fresh mandate given by shareholders. The following day, it bought back 1.8 million shares at between 23 and 23.5 cents each. At these levels, the share price is trading at around its 52-week low.

 

The last time the company bought back shares was on Jan 18 and 19 when it acquired one million shares at 32 cents each and 700,000 shares at 32.5 cents each on the open market respectively.

 

On May 29, executive chairman and CEO Charles Antonny Melati transferred 40 million shares to an unnamed family member as a gift, leaving him with around 253.35 million shares, equivalent to 18.14% of the company, down from 21% previously.

 

In its May 12 business update for 1QFY2023 ended March, Geo Energy Resources reported earnings of US$16 million, down 60% y-o-y. Revenue came in at US$131.9 million ($177.62 million), down 13% y-o-y as sales volume decreased 23% y-o-y even as prices increased 12% y-o-y.

 

Not a good time for coalminers

 

Geo Energy Resources will pay an interim dividend of 0.5 cents, representing a payout ratio of 32.8% and a dividend yield of 13.6% based on its March 31 share price.

 

As at March 31, Geo Energy held cash of some US$209 million and recorded a debt-over-equity ratio of 0.01 times.

 

Geo Energy recognises that with growing awareness of sustainability practices, many institutional investors are avoiding coalminers like themselves. Still, Melati maintains that coal remains a &ldquo significant pillar&rdquo of power generation and industrial sectors.

 

&ldquo China and India continue to lead coal-fired power generation activities and European countries have been temporarily switching to coal due to the comparatively higher prices for natural gas, low hydropower generation and a modest increase in nuclear power generation,&rdquo he adds.

 

Melati says that the shift to clean energy is a gradual process that requires strong backup from coal as emerging economies continue to rely on coal. &ldquo We are making active progress towards value accretive acquisitions of producing coal mines to increase our reserves and production volumes and achieve diversification. We are eyeing our revenue growth and expanding revenue streams towards building a sustainable business.&rdquo

GKE Corporation&rsquo s earnings for the FY2022 ended May 31 plunged 59.2% y-o-y to $4.7 million from $11.5 million previously.

 

Earnings per share (EPS) fell by 59.1% y-o-y to 0.61 cents for the FY2022.

 

Revenue for the full year fell 11.9% y-o-y to $104.8 million.

 

Gross profit fell 8.4% y-o-y to $26.3 million although gross profit margin (GPM) increased by 1 percentage points to 25.1%.

 

Profit before tax fell 50.3% y-o-y to $8.52 million.

 

According to the company, the significant decrease was due to the reduction in government support schemes and lower contribution from the group&rsquo s infrastructural materials and services segment amid China&rsquo s zero-Covid policy and the adverse segment in the real estate sector.

 

As at May 31, cash and cash equivalents stood at $27.1 million.

 

The company has proposed a final dividend of 0.2 cents per share for the FY2022, half of the 0.4 cents proposed in the FY2021.

 

&ldquo We are satisfied by our financial performance in FY2022 as the group has continued to overcome evolving changes in our business environment in Singapore and China amid the prolonged Covid-19 pandemic and geopolitical uncertainties,&rdquo says Neo Cheow Hui, GKE&rsquo s CEO and executive director.&rdquo

 

&ldquo Our efforts in advancing our conventional warehousing and logistics operations towards higher value-adding solutions and services for our customers took time, and reinforced our fundamentals as we broadened into higher margin solutions and services, such as handling and storage of dangerous goods (&ldquo DG&rdquo ) and pharmaceutical products,&rdquo Neo adds.

 

He continues: &ldquo The unexpected turmoil in China&rsquo s real estate sector and the stringent precautionary measures in compliance with the Chinese government&rsquo s &lsquo zero-Covid&rsquo policy, had adversely impacted the Chinese economy, as well as the financial performance of our infrastructural materials and services segment in China.&rdquo

 

That said, the company believes the urbanisation trend in China is &ldquo intact&rdquo .

 

&ldquo Meanwhile, we are mindful of the rising inflationary pressure on our operations as we continue to strive to minimise risk and adverse impact,&rdquo says Neo.

 

&ldquo As countries move progressively from the pandemic phase to an endemic phase, we are optimistic about our longer-term prospects in both our warehousing and logistics segment in Singapore, and infrastructural materials and services segment in China. We are motivated and committed to emerge stronger with our employees, customers, and business partners in a sustainable manner.&rdquo

 

CGS-CIMB Research analysts Kenneth Tan and Ong Khang Chuen have downgraded GKE Corp to &ldquo hold&rdquo with a lower target price of 10 cents from their previous target of 16 cents, as the storage company&rsquo s ready-mix concrete (RMC) operations continue to be suppressed by weak sentiments in China&rsquo s property sector.

 

In addition, the analysts have reduced their earnings per share (EPS) estimates for the FY2022 to FY2024 by 19%-29%, bringing their net profit forecast for the FY2022 to $6.8 million, a y-o-y dip of 41%.

 

&ldquo We believe GKE&rsquo s 2HFY2022 net profit was weaker both h-o-h and y-o-y due largely to a sluggish RMC market in China as well as delayed commencement of its new initiatives &mdash both in Singapore and China,&rdquo write the analysts.

 

&ldquo We cut our full-year distribution per share (DPS) estimate to 0.2 cents, assuming a dividend payout ratio of 25% and indicating FY2022 dividend yield of c.2%,&rdquo they add.

 

Looking ahead, the CGS-CIMB analysts expect tight restrictions to negatively impact China&rsquo s RMC market.

 

&ldquo We believe developers may have slowed down project executions in Wuzhou in 2HFY2022 given [the] near-term tight liquidity in the construction sector,&rdquo they write. &ldquo As such, we see weaker-than-expected volume sales from GKE&rsquo s RMC plant in Wuzhou.&rdquo

 

Positively, Singapore&rsquo s logistics segment continues to perform well, with the full utilisation of GKE&rsquo s warehouses in 2HFY22F reflecting favourable industry trends.

 

&ldquo We estimate GKE&rsquo s 2HFY2022 logistics revenue was further boosted by contribution from specialty chemicals subsidiary Fair Chem, which was acquired on Jan 28,&rdquo say the analysts. &ldquo We understand the group is still in the process of converting some of its yard space into higher-yield chemical storage areas, which we now expect to only commence contribution in 1HFY2023.&rdquo

 

On Jun 15, GKE Corporation : 595 -1.92% 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.