32. GKENT V2 2016-3-29

GKENT V2
Let's look at the latest quarterly report of GKENT on what had happened for 4Q.
Firstly, the most glamorous and eye-catching line would be the revenue. 
And yes, it is a recorded high of RM267 million a quarter, which is undoubtly the best quarter ever. 
The gross margin remains strong, which has about 20% effective GP margin. 
Nevertheless, the net profit does not increase as expected despite the historical new high in company's revenue. 
We will investigate further on why could this happen.
Dividend declared is so promising and it represents a 40% dividend payout ratio. Perhaps you might think that this is not a big deal for a listed company, 
However, for a meter/construction company, having a net cash >50 cent per share, surge in business performance (apparently also its cash flow) with an increase of dividend payout, it is promising enough for myself.
Meter division recorded a new high revenue becaue of the contribution from its largest single order to-date, received from the Water Supplies Department, Hong Kong.
Well, engineering division is the division that creates the curiosity for all the investors. LRT 3 construction should be only starting after the second half of this year. 
But why could this happen? Existing contract? 
Perhaps it is relating to some recognition of revenue for LRT3 which we are not aware of, but this is definitely a flashy quarterly result that substantiate the profile of the Company.
To recap :
1 GKENT has successfully begged LRT3 project during last September, which can have a tentatively RM4.5million construction value. LRT 3 construction should be kicked start on the 2nd half of this year. Based on 10% profit margin, profit of RM450 million from LRT is close to its market cap today.
2 Net cash position. 
3 Great and increasing dividend payout. If you buy it today, you will earn 3.8% - close to FD rate.
4 Rollovered PE of 6.82 - current price / EPS of newest quarter X 4
Potential risk
1 Cancellation of LRT3 
2 Rise in raw material costs 
3 Higher levy on foreign worker that has been implemented in 
Feb 2016

Conclusion
I always believe in market inefficiency and this is well illustrated in GKENT. The share price does not reflect its order book which close to its market capitalisation today. (remarks: this has also not taken in account the meterring division or other engineering project)
There is definitely no credit risk for such construction project (government related) and the only thing GKENT should do is to manage its cost efficiency to maximise the shareholders' value. 
This is most likely another imitation to GADANG, which you can calculate easily the value of the Company and operate our capital through TA analysis.
The journey of investing in GKENT can be fruitful, meaningful and valuable.
Wealth hunter does not recommend the buying and selling of the abovementioned stock and Wealth hunter might or might not have invested in GKENT.
Invest at your own risk. 
Cheers!