by PRIYA VASU / pic by MUHD AMIN NAHARUL
THE ongoing rift between Prasarana Malaysia Bhd and MRCB-George Kent Sdn Bhd on the completion of Light Rail Transit Line 3 (LRT3) project will likely impact George Kent (M) Bhd’s earnings outlook very hard.
Prasarana — which is reported to be seeking to have a say in the appointment of subcontractors for the project works from its main contractor — has driven a wedge between the two entities, The Malaysian Reserve (TMR) reported yesterday.
According to Kenanga Research analyst Lum Joe Shen, George Kent’s already depleting construction orderbook, coupled with a potential LRT turnkey terminations, pose greater risk to its financial performance on fear that George Kent might be sidelined from undertaking the project.
“George Kent could possibly be terminated and replaced from its current LRT3 turnkey role under the MRCB-George Kent partnership.
“While these are mere speculations for the time being, we note that our financial year 2022 (FY22) earnings forecast could see a 37% downside to RM33 million from the omission of LRT3 contributions,” said Lum.
He expressed concern about the health of George Kent’s orderbook that currently stands at RM3.6 billion, of which 95% is actually derived from the LRT3 project. The orderbook provides visibility for the next four years, said Lum.
The research firm has yet to factor in zero replenishment for FY21-FY22 as they have yet to secure any new construction projects since December 2016.
The research firm maintained an ‘Underperform’ rating on the company, but with a higher target price of 56 sen, after rolling valuation base year to FY22.
George Kent recorded a net profit of RM10.26 million for the third quarter ended Oct 31, 2020 (3QFY21), driven by significantly higher water meter sales along with the gradual recovery of the economy.
Revenue for the quarter rose 8.22% to RM78.91 million from RM72.91 million. The group did not declare any dividend for this quarter, compared to the one sen it declared in the same quarter last year.
On a quarter-on-quarter basis, the group’s net profit rose 21.83% from RM8.74 million in the 2Q, while revenue increased 12.47% from RM70.16 million, the company said in a filing to Bursa yesterday.
“The 3Q results are in line with our and consensus’ expectation at 66% and 71% of forecast respectively. No dividends are declared as expected,” said Lou.
TMR reported earlier that MRCB-George Kent has been given “a hard time” on its progress payment by Prasarana.
According to sources, a high-ranking individual in Prasarana had asked MRCB-George Kent to award a work package worth a substantial amount to a particular firm, thus raising the issue of conflict of interest for the urban public transportation operator.
Prasarana president and group CEO Muhammad Nizam Alias has gone on a “temporary leave” as of last month, according to a news portal, due to unrevealed reasons.
MRCB-George Kent is a 50-50 joint venture of Malaysian Resources Corp Bhd (MRCB) and George Kent.
The LRT3 project started in August 2015 with an initial budget of RM10 billion to serve some two million people along the Bandar Utama-Johan Setia route, before costs escalated to a whopping RM31.65 billion.
It was among several mega infrastructure projects reviewed by the federal government after Pakatan Harapan came to power in May 2018.