George Kent Malaysia Bhd has seen a steady run-up in its share price over the past three years, as the market views the group’s transition into the engineering segment positively, while its water meter division continues to provide a growing base of recurring income.
Its share price quadrupled during the review period for The Edge Billion Ringgit Club awards, from below RM1 at end-March 2014 to RM4.12 at end-June 2017, translating into an annualised total return of 70.31% over the period of three years and three months.
This is comparable to the 70.55% attained by Vitrox Corp Bhd, making both companies joint Gold winners of The Edge BRC 2017 Highest Returns to Shareholders Over Three Years in the Trading/Services, Hotels, IPC and Technology sector.
George Kent’s net profit grew at a double-digit compound annual growth rate of 53% for the three years up to its financial year ended Jan 31, 2017 (FY2017), allowing the group to consistently pay out dividends to reward its shareholders.
For the three years up to FY2017, George Kent has paid out a total of 12.3 sen per share in dividends, translating into an average dividend yield of about 4%.
The group’s transition into engineering works, beginning with it securing the RM1.1 billion systems works contract for the Light Rail Transit (LRT3) Ampang Extension in 2012, has been one of the main drivers of its growth over the years.
The job involved signalling systems, communications, track works and electrification over a period of 44 months for the 17.7km extension from Sri Petaling to Putra Heights.
Despite facing some hurdles in the project due to delays on the part of the civil contractors, George Kent still managed to deliver without any cost overruns.
Considering the group’s prior experience in system works, Prasarana Malaysia Bhd had in 2015 announced the appointment of a joint venture (JV) between George Kent and developer Malaysian Resources Corp Bhd (MRCB) as the project delivery partner (PDP) for LRT3.
Following that, Mass Rapid Transit Corp Sdn Bhd had in 2016 awarded the JV company of George Kent and China Communications Construction Co Ltd (CCCC) a RM1.01 billion work package for the Klang Valley Mass Rapid Transit Line 2 (KVMRT2) in 2016.
Besides its role in mega railway projects, George Kent’s engineering division has also been supported by its hospital construction sub-segment, and was involved in the upgrading of Hospital Kuala Lipis in Pahang, Hospital Tanjung Karang in Selangor and Hospital Endokrin in Putrajaya.
While the engineering segment has been a major growth engine for George Kent, the group’s water metering division has provided a stable foundation of recurring income over the years.
Its manufacturing facility in Puchong is one of the largest hot brass forging plants in Southeast Asia, producing internationally certified water meters for household and industrial applications.
The metering segment has been steadily growing as George Kent continues to secure new supply contracts with water authorities in Malaysia and the region. The group currently exports its products to some 40 different countries.
Meanwhile, the group also has a strong track record in the construction of key water infrastructure — including water treatment plants, dams and pumping stations — completing over 28 major water supply contracts in the past two decades.
At the group’s annual general meeting press briefing in June this year, George Kent chairman Tan Sri Tan Kay Hock indicated that the group will be eyeing bigger contracts going forward, and is tendering for about RM4 billion in projects, ranging from railways to hospitals.
In a note dated June 23, Hong Leong Investment Bank Bhd analyst Jeremy Goh said George Kent is in a prime position to participate in upcoming mega rail projects such as the East Coast Rail Link and High Speed Rail.
The research house maintains a “buy” call on George Kent, and raised its target price on the counter to RM5.60 as the broker feels the group should be valued on par with larger contractors given its strong financials and exposure to mega rail jobs.