GKE Corporation Limited Financial Analysis: Net Profit Growth of 132.5%

Business Description

GKE Corporation Limited is a Singapore-based investment holding company with diversified operations across logistics, infrastructure materials, and agriculture. Its core business segments include:

• Warehouse and Logistics: Providing integrated logistics solutions, including warehousing, freight forwarding, container trucking, marine logistics, and chemical warehousing.
• Infrastructural Materials and Services: Manufacturing environmentally friendly ready-mixed concrete, lightweight brick building materials, and cement products.
• Agriculture: Engaged in indoor farming and the development of agricultural technology solutions.

The company operates mainly in Singapore and China, with a strong foothold in the logistics sector in Singapore and a manufacturing presence in China. Its geographical revenue split is 79.8% from Singapore and 20.2% from China for the period ending 30 November 2024.

Industry Position

GKE Corporation is positioned within the logistics, infrastructure materials, and agriculture industries. It competes with other logistics providers and manufacturers of building materials. While the company has a growing logistics business in Singapore, challenges persist in the infrastructure materials sector in China due to slower economic recovery.

Revenue Streams and Competitive Advantage

• Revenue Streams: The company generates revenue through:
  • Logistics services: S\$49.8 million (79% of total revenue).
  • Infrastructural materials: S\$12.7 million (20% of total revenue).
  • Agriculture: S\$0.6 million (1% of total revenue).
• Customer Base: A major customer contributed S\$8.2 million (13% of total revenue).
• Competitive Advantage: The company’s diversified revenue base and investment in high-value logistics capabilities provide stability and growth potential.

Financial Statement Analysis

Income Statement

• Revenue Growth: Increased by 13.8% year-on-year to S\$63.2 million in 1H FY25.
• Net Profit Growth: Net profit surged 132.5% to S\$4.4 million, driven by higher profits in the logistics segment and a S\$1.1 million gain from the disposal of intangible assets.
• Gross Profit Margin: Improved from 29.7% to 30.8%, indicating better cost management.
• Finance Costs: Decreased by 16.4% due to lower outstanding loans and lease liabilities.

Balance Sheet

• Assets: Total assets remained stable at S\$185.4 million. Non-current assets decreased due to depreciation and disposal of intangible assets, while current assets increased due to higher trade receivables and cash balances.
• Liabilities: Total liabilities decreased by 2.6% to S\$88.5 million, mainly due to repayment of borrowings.
• Equity: Shareholders’ equity increased by 2.7% to S\$96.9 million, supported by profit accumulation.

Cash Flow Statement

• Operating Cash Flow: Increased to S\$10.3 million due to higher operating profits.
• Investing Activities: A net outflow of S\$0.5 million, primarily due to capital expenditure on property, plant, and equipment.
• Financing Activities: A net outflow of S\$8.9 million, mainly due to loan repayments, lease liabilities, and dividend payments.

Dividend Information

• Special Dividend: The company declared an interim special cash dividend of 0.05 Singapore cents per share, payable on 21 February 2025.

Key Findings

Strengths

• Strong revenue growth across all segments, particularly logistics (+13%).
• Net profit growth of 132.5%, reflecting improved operational efficiency.
• Stable cash flow generation from operations.
• Expansion plans, including a new subsidiary in the Middle East, indicate growth potential.

Risks

• Exposure to economic uncertainties in China, particularly for the infrastructure materials segment.
• Dependency on a major customer for 13% of revenue.
• High administrative expenses, which increased by 6.3% year-on-year.

Special Activities

The company is diversifying into telecommunications sales and distribution, subject to shareholder approval. Additionally, it has incorporated a new subsidiary in the Middle East to expand its logistics business.

Recommendations

For Current Investors

Hold the stock. The company’s strong financial performance, dividend declaration, and growth initiatives make it a promising investment for the medium term.

For Potential Investors

Consider buying the stock. The company’s solid revenue growth, profitability improvements, and expansion plans provide a compelling investment opportunity.

Disclaimer

This recommendation is based on the analysis of the provided financial report and does not constitute financial advice. Investors should conduct their own due diligence or consult a financial advisor before making investment decisions.

Report Details

• Date of Report: 13 January 2025
• Reporting Period: Six months ended 30 November 2024

View GKE Historical chart here