GKE Corporation: Financial Analysis with 132.5% Net Profit Growth
Business Description
GKE Corporation Limited is a leading integrated warehousing and logistics solutions provider headquartered in Singapore. The company operates two primary business segments:
- Warehousing & Logistics: Offers end-to-end supply chain management solutions, including general and specialty cargo storage, bonded warehousing, container trucking, project logistics, and marine logistics.
- Strategic Investments: Focuses on infrastructural materials and services in China, particularly ready-mix concrete (RMC) manufacturing and construction material waste recycling, as well as an agricultural business specializing in indoor vegetable cultivation in Singapore.
Geographically, the company has a strong presence in Singapore and China, with recent expansions into the Middle East through a wholly-owned subsidiary. GKE leverages state-of-the-art technology and well-equipped facilities to maintain operational efficiency and competitiveness across its market segments.
Industry Position
GKE operates in the logistics and infrastructural materials markets. The Singapore logistics sector is highly competitive, but GKE has carved a niche by focusing on high-value cargoes and specialty services. In China, its RMC and recycling operations position it in the construction materials supply chain, which is gradually recovering due to government stimulus in the real estate sector. GKE’s diversification into agriculture and potential entry into the telecommunications market reflect its strategic efforts to mitigate market risks and broaden its revenue streams.
Revenue Streams and Competitive Advantage
The company generates revenue from three main segments:
- Warehousing & Logistics: Contributed S\$49.8 million in 1H FY25, a 13% YoY increase.
- Infrastructural Materials & Services: Contributed S\$12.7 million in 1H FY25, a 16.7% YoY increase.
- Agriculture: Contributed S\$604,000 in 1H FY25, a 20.3% YoY increase.
The company’s competitive edge lies in its integrated logistics solutions, high-quality RMC production, and its ability to generate recurring income from strategic investments.
Financial Statement Analysis
Income Statement
For the six months ended 30 November 2024 (1H FY25):
- Revenue: S\$63.2 million, a 13.8% YoY increase.
- Gross Profit: S\$19.5 million, an 18.1% YoY increase, with gross profit margin improving from 29.7% to 30.8%.
- Net Profit: S\$4.4 million, a 132.5% YoY increase.
- Earnings Per Share (EPS): 0.57 cents, up 128% YoY.
Balance Sheet
- Net Asset Value: Increased from S\$94.3 million (31 May 2024) to S\$96.9 million (30 November 2024).
- Cash and Short-Term Deposits: S\$27.3 million as of 30 November 2024.
- Debt Levels: Long-term borrowings reduced from S\$31.7 million to S\$28.9 million, while short-term borrowings slightly declined to S\$10.2 million.
- Net Asset Value Per Share: S\$0.1258 as of 1H FY25.
Dividend
The company declared a special interim cash dividend of 0.05 Singapore cents per share. The book closure date is 7 February 2025, and payment is scheduled for 21 February 2025.
Key Findings
Strengths
- Strong revenue and net profit growth, supported by both core and strategic business segments.
- Prudent financial management with reduced borrowings and higher cash reserves.
- Declared an interim dividend, demonstrating shareholder value creation.
Risks
- Exposure to China’s real estate market, which remains volatile despite government stimulus.
- Potential risks associated with diversification into new businesses, such as telecommunications.
Special Activities
The company divested its limestone mining rights and an 18% stake in a mining joint venture, generating a one-time pre-tax gain of S\$1.1 million. Additionally, it plans to diversify into the telecommunications sector, pending shareholder approval.
Investment Recommendations
If You Currently Hold the Stock:
Retain the stock. The company’s strong financial performance, dividend declaration, and strategic expansion efforts provide a solid foundation for long-term growth.
If You Do Not Currently Hold the Stock:
Consider buying the stock. The 132.5% net profit growth and strategic initiatives signal attractive growth potential, but ensure to monitor risks from diversification and market exposure.
Disclaimer
This analysis is based solely on information provided in the financial report dated 13 January 2025 for the six months ended 30 November 2024. Investors are advised to conduct further research and consider their financial position before making investment decisions.
