Tuesday, Aug 09, 2022
MARC Ratings has affirmed its ratings of MARC-1IS and A+IS on George Kent (Malaysia) Berhad’s (George Kent) RM100.0 million Islamic Commercial Papers (ICP) and RM500.0 million Islamic Medium-Term Notes (IMTN) Programmes, subject to a combined limit of RM500.0 million. The ratings outlook is stable.
The rating affirmation is premised on George Kent’s strong liquidity position, healthy balance sheet, and established presence of more than 80 years in the manufacture of water meters. These strengths are counterbalanced by the uncertainty around its construction business, cost pressures as well as its volatile working capital profile.
We note that its meter business has demonstrated fair resilience through the pandemic; despite the pandemic-related restrictions, production volume declined by 7.3% y-o-y to 2.16 million units in FYE March 2022. While cost pressures rose from rising brass costs amid tighter supply, margin has been steady to date, thanks to product selling price increases and some forward buying by George Kent.
In regard to its construction segment, its outstanding order book of about RM486 million stems from a single project to construct a glove manufacturing plant in Lumut, Perak. Phase 1A of the project is currently ongoing at 81% completion as at end-May 2022, with less than RM40 million to complete the remaining 19%. The timing for the implementation of the remaining phases, however, is uncertain at this juncture, depending on the outlook for the rubber glove industry. This, and lack of new work, clouds revenue visibility for the construction segment, although we note George Kent’s continuing pursuit of bidding opportunities.
Working capital remains volatile due to limited number of projects to smoothen cash inflows and outflows. This risk is substantially mitigated by its sustained net cash position. George Kent’s liquidity profile remained strong, with cash and cash equivalents of RM283.7 million as at end-March 2022 relative to its debt of RM220 million, including the RM132 million issued under the ICP/IMTN Programme. Debt-to-equity ratio of 0.38x remains moderate. While the ratings incorporate some room for inorganic growth, we expect any mergers and acquisitions will be value accretive, and that the actions, if realised, would be undertaken in a financially disciplined manner.
Contacts:
Contacts:
Ahmad Ikmal Mohd Shahril, +603-2717 2963/ ikmal@marc.com.my
Ummi Kalsom Yaacub, +03-2717 2934/ ummikalsom@marc.com.my
Hafiza Abdul Rashid, +603-2717 2955/ hafiza@marc.com.my