SAC Capital’s Lim Shu Rong has downgraded GKE Corp to “hold” from “buy”, together with a reduced target price of 12.3 cents from 17.1 cents previously, following the company’s 1HFY2022 earnings that missed expectations.

For the company’s six months ended Nov 2021, earnings dropped by 41.5% y-o-y, on the back of a 8.4% y-o-y dip in revenue to $55 million.

These numbers were 34% and 43% respectively of Lim’s projections.

The company’s earnings from its ready-mixed concrete dropped by a third in the 1HFY2022 period from lower government support, higher costs and some $0.9 million in credit allowances.

Nevertheless, GKE’s logistics business, based in Singapore, is still well-positioned to generate steady earnings, as customers require more space to stock up amid pandemic-caused supply chain worries.

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To capture more business, GKE is converting some of its space to dedicated facilities qualified to store so-called dangerous goods. It is expanding via acquisitions too.

Lim’s revised target price of 12.3 cents is based on a sum-of-the-parts valuation where the logistics businesses are valued at one time book value, while the concrete business in China is tied to 14.6 times earnings.

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