Kenanga Research upgrades George Kent to outperform

KUCHING: The research arm of Kenanga Investment Bank Bhd (Kennaga Research) has upgraded their call on George Kent (M) Bhd (George Kent) to outperform as they belive that the stock is currently trading at attractive valuations.

“We had previously called an underperform on George Kent due to its rich valuation as it traded up to FY19E PER of 17.3-fold.

“However, we see value emerging in the stock arising from the recent sell-down due to the negative news flow in the construction as several mega infrastructure projects have been scraped since the change in government,” explained the research arm.

Since GE14, George Kent’s stock has plummeted spectacularly by 71.3 per cent to a 1-year low of RM1.13, but a since recovered somewhat by 36 per cent to RM1.54 on June 12.

According to Kenanga Research, George Kent currently still has one major infrastructure project in the pipeline to look forward to. The construction cost for the LRT3 of which George Kent is the project delivery partner (PDP) of, has yet to be finalised by Prasarana.

The research arm opines that the construction cost for the LRT3 will exceed RM9 billion and land somewhere closer to RM14 to RM15 billion.

While there is some fear that the project might be cancelled like the HSR and MRT3, Kenanga Research believed that this was unlikely as most of the contracts have already been awarded to various contractors and construction works are already in progress.

“While we think that LRT3 is likely to proceed, we highlight that there would be significant risk to earnings and valuations on the contrary,” they added.