How fortune shifts for George Kent

George Kent’s fortune takes a turn for the worse when the govt announced that the LRT3 cost has tripled

By RAHIMI YUNUS / Pic By TMR

The once investors’ darling George Kent (M) Bhd has seen its fortune reversed in the last two months, erasing more than RM1.5 billion in market capitalisation and its share price hovering just below the RM1 mark.

The engineering company’s share price plummeted from a 52-week high of RM4.47 to a low of 98 sen yesterday before ending the day’s trade at 99 sen.

Much of the sell-off occurred after the conclusion of the 14th General Election.

The engineering and water meter manufacturer has been one of the main beneficiaries of rail projects awarded by the previous government.

The change in leadership in Putrajaya has seen the government cancelling projects, putting contracts under review and forcing cost structure re-evaluations.

Investors are concerned about the prospect of construction companies like George Kent, especially with the multiple project cancellations and dwindling orderbook.

“Construction and property sectors need to replenish their orderbook for a sustainable earnings growth.

“Otherwise, it is unlikely for these stocks to be in demand in premium on book value. Orderbook becomes questionable, earnings growth may not be there and it then deemed as overvalued,” Areca Capital Sdn Bhd CEO Danny Wong told The Malaysian Reserve (TMR).

George Kent’s fortune takes a turn for the worse when the government announced that the Light Rail Transit Line 3’s (LRT3) cost had tripled to RM31.45 billion due to poor management by project manager Prasarana Malaysia Bhd.

The government also said it would not provide additional funding and told Prasarana to shave the cost of the project.

The 37km rail line project, initially estimated at RM9 billion in 2015, had jumped to RM15 billion. Prasarana is seeking additional funds from the government as the project is expected to run up a bill of RM31.45 billion.

The rail line is reportedly 10% completed to date since construction began in 2015.

Malaysian Resources Corp Bhd (MRCB) and George Kent are the project delivery partners (PDPs) for the rail line.

Reports had suggested that Prasarana may take over the construction of the LRT3 project from its PDPs, sending the shares for both stocks south.

MRCB hit a 52-week low of 55 sen from a high of RM1.31. It closed yesterday’s trading at 58 sen.

Other large-scale infrastructure projects currently under review by the newly minted government include the East Coast Rail Link, Kuala Lumpur (KL)-Singapore high-speed rail (HSR), Multi-Product Pipeline and Trans Sabah Gas Pipeline projects.

In a move to stem the selling pressure, George Kent received its share- holders’ approval for a share buyback.

George Kent has received the nod to purchase its own shares up to 10% of its total number of issued shares.

One source who declined to be named said the buyback move would not have any significant impact to the share price.

“The buyback plan is sort of to show that the management is confident of the current situation. I do not think it really matters because assuming they (George Kent) could not get any other construction job in the future, no matter how many buy-backs they do, it would still not be able to help the valuation of the share price,” the source said.

George Kent’s share price was at RM3.94 before the May 9 election. It lost 7.48%, or eight sen yesterday.

Between May 8 and July 11, George Kent’s market capitalisation was about RM1.6 billion.

“George Kent may just become a water meter manufacturer moving forward,” said a source.

Its latest financial result showed that its net profit rose 16.2% year- on-year to RM21.5 million for the first quarter ended April 30, 2018 (1Q18), despite revenue falling from RM129.42 million in 1Q17 to RM99.76 million for the period.

The group said its long strategic plan remains to broaden its income base by substantially increasing income from the metering and other water-related businesses and investments.

However, George Kent remains cash-rich with RM343.5 million, with its outstanding orderbook at RM5.3 billion, which will continue to provide earnings visibility in the medium term.

The firm previously formed a consortium with four multinational companies — Siemens AG, Alstom SA, Ferrovie dello Stato Italiane SpA andPORRAG—to bid for the KL-Singapore HSR project. The RM100 billion HSR project has been put on a backburner due to the cost.