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GKE Corp On Track For Profitable FY16 [Updates]
Corporate Digest | 21 December 2015
By: Louis Kent Lee
Articles (199) Profile

In early October 2015, we first covered GKE Corp and laid down main points that got us interested in the company. Specifically, it was directly looking at the future generation of inflows for the company.

Let’s do a little recap here. GKE Corp is a leading integrated logistics provider that offers a one-stop comprehensive set of solutions for supply chain management.

In our previous write up, we have noted the ability of GKE Corp to still achieve utilisation rate of some 90 percent, despite the oversupply scene in the warehousing scene in Singapore.

More importantly, we revealed the bright spots to look at for its strategic investment segment. The recent meet up with management and the follow up announcements on the Singapore Exchange gives endorsement to our initial view of the company and we remain positive on the moves made by the company.

Acquisition Of Marquis Services; Earnings Accretive

On 15 December 2015, GKE Corp announced the completion of 70 percent acquisition stake in Marquis Services for $2.94 million.

Marquis Services is primarily involved in the provision of chemical warehousing, stevedoring and lighterage services, freight forwarding, crating and transportation of marine materials by sea.

The main purpose for the acquisition harnesses on the synergies involved. GKE Corp would immediately be able to offer a wider range of third party warehousing and logistics solutions and services to more diverse industries. This also opens up the outlet of cross-selling specialised warehousing and logistics solutions and services that could potentially enhance GKE Corp’s competitiveness in this sector.

Now, the best way to see results, is when it can be validated by numbers. An interesting point that immediately caught our attention was the profit guarantee clause included in this acquisition (quite rare these days).

The profit guarantee denotes a guarantee of not less than $2.8 million in aggregate for two years, from financial period 1 December 2015 to 30 November 2017.

On a mathematical front, it is easy to see why we are positive on this. Firstly, the profit guarantee essentially means the acquisition cost is more or less covered in full after two years without breaking any sweat. Second, even if we split $2.8 million across two years ($1.4 million each year), it would have been significantly material for GKE Corp’s bottom line, considering FY15’s loss making position, albeit having narrowed significantly from that of the loss position in FY14.

New Revenue Generation Abilities For Both Parties

From my understanding, Marquis Services, who is a dominant marine paint solutions and services provider, is already a profitable entity of its own and is bold in the insertion of the profit guarantee clause purely because it is confident of generating such numbers based on the solidness of its current business.

The bigger picture that got both parties together on the table was still the sweet pie that can be further unlocked when both parties come together to open up their ecosystem sales. For instance, Marquis Services currently faces limitation to expand its distribution capabilities with its relatively smaller fleet of land transport and manpower, which can be easily supported by GKE Corp’s fleet of transport to help Marquis Services further expand.

In addition, the currently outsourced function of heavy lift equipment logistics and open yard storage services by Marquis Services to third party providers, can also be supported by GKE Corp’s Freight and Express Logistics business unit, sprouting new revenue generation abilities.

What about Marquis Services’ own ecosystem? After the acquisition, Marquis Services would tap on GKE Corp’s proposed chemical warehouse to expand its product portfolio to include storage and inventory management of chemicals (rare in Singapore and commands much higher margins). This would be a double win for both Marquis Services and GKE Corp.

In testament to this execution, after the acquisition, Marquis Services will acquire the chemical warehouse cum property located at 7 Kwong Min Road Singapore 628710, for some $5.4 million, which it is already currently using and managing, within the next three months. When acquired, the property will be 70 percent owned by GKE Corp.

Keeping A Tab On Updates

Prior to the acquisition of Marquis Services, we have seen the completion of the construction of the 83,000 m3 liquefied gas carrier vessel (“Vessel”) on 23 November 2015.

GKE Corp expects this Vessel to be delivered by 31 May 2016, and is currently in negotiation with several interested parties to secure a bareboat chartering contract. As mentioned in our past write up that monetisation is expected to come from the Vessel, part of the Strategic Investments segment, we will be actively following up on the developments of GKE Corp to get more colour on this progress.

GKE Corp’s wholly owned subsidiary Wuzhou Xing Jian Ready-mix Co, which is expected to have its cement plant completed and run commercially by end 2015, is also primed for a timely entrance into an arena where there seems to be an undersupply of quality premix cement, you can check this in detail over here written previously. We expect material contribution to pour in once execution engine begins in full swing.

From this update, it is apparent that a) GKE Corp is on track to a profitable position for FY16, b) material contribution from special investments’ segment is going to significantly boost its bottom line further sustainably, and c) share price is still low prior to the full price in of all these catalysts.

Louis is a qualified accountant with the ACCA, and is the Research Editor at Shares Investment magazine.

Please click here for more information about this author.


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