SAC Capital’s Tracy Lim has initiated coverage on warehousing and logistics solutions provider GKE Corp with a “buy” call and a target price of 16.3 cents. 

In her report dated June 8, Lim noted that GKE posted strong results for the 1HFY2021 ended Nov 30, 2020, with stellar results expected for the FY2021. 

During 1HFY2021, GKE reported a 9.2% y-o-y increase in revenue to $60.1 million, and higher gross margins of 24.2% from 18.6% previously. 1HFY2021 PATMI or earnings surged 3.6 times to $6.5 million on the back of higher margins, which Lim expects “can be maintained moving forward”.

For more stories about where the money flows, click here for our Capital section

The higher gross margins for the 1HFY2021 were attributable to an increase in contribution by its infrastructural segment which generally has higher margins, as well as a higher utilisation of warehousing space for the logistics segment due to Covid induced stockpiling.

Want our latest Singapore corporate news stories for FREE

Follow our Telegram, Facebook for the latest updates round the clock

“For logistics segment, which has high fixed costs, stockpiling has increased utilisation rates which will give economies of scale and bring down unitary costs. We expect FY2021 to see higher segmental margins from logistics.” she adds. 

China’s urbanisation plans are also another catalyst for GKE, deems Lim. The upgrading of infrastructure for Wuzhou and Cenxi will bring sustained demand for ready mixed concrete (RMC). GKE has one RMC plant in Wuzhou, and the Cenxi plant is expected to come online later this year.

See also: Green fingers for GKE as it moves into indoor farming, obtains licence from SFA

With Cenxi’s new plant, the total production capacity, including Wuzhou’s existing 3 production lines, would be increased to 1.6 million cubic metres. The current utilisation rate of about 50% means output can be raised when demand increases, says Lim, who adds that it would lift contribution to GKE’s infrastructural segment contribution and group margins.

As at 3.38 pm, shares of GKE traded at 13.3 cents, with a forecasted FY2021 price to earnings ratio of 8.8 and price to book ratio of 1.2.