Hong Leong Investment Bank Bhd (HLIB) said necessary approvals from the Ministry of Trade and Industry, the US Food and Drug Administration and European authorities remained pending and this would delay GKent’s new venture.
GKent originally targeted to start construction of a new glove plant in July this year, with the first line installed by August this year.
“We anticipate delays on the back of lockdowns and capacity constraints. All this coupled with declining average selling price (ASP) outlook could see GKent’s window of opportunity narrowing,” HLIB said.
GKent shareholders approved the company’s plan to build a glove manufacturing plant in Lumut Port Industrial Park, Perak for RM624.1 million.
Shareholders also approved GKents’s subscription of a 40 per cent stake in Dynacare Sdn Bhd, a wholly-owned unit of Johan Holdings Bhd, for RM40 million or RM1 per share.
Meanwhile, HLIB said GKent’s metering arm remained resilient on the manufacturing side amid ongoing difficulties with a 60 per cent manufacturing cap.
“Nonetheless, we continue to expect the segment to remain steady in 2021 driven by continued penetration into new markets, reaping benefits from its licensing agreement with Honeywell.
“Moving ahead, GKent foresees opportunities for penetration into Vietnam given the investments planned to increase water access further there,” HLIB noted.
As for the construction segment, HLIB expects GKent’s outstanding order book for both hospital projects to be RM64 million as of the end-March this year, while its LRT3 order book, with joint venture-accounted, at RM2.9 billion.
Both hospital projects should be on course for completion this year.
Should GKent’s 40 per cent-owned glove JV proceed, the company would be awarded a RM624 million related-party transaction(RPT) contract, of which RM213 million would be civil/infrastructure nature, the firm noted.
HLIB also noted that GKent had not secured any external jobs since LRT3, missing out on tenders of late.
Some outstanding tenders the company is participating in include various water-related and hospital jobs ranging from RM150 million-RM400 million in Peninsular Malaysia, Sarawak water treatment plants worth a combined RM1 billion and Rasau water scheme.
HLIB maintained a “Hold” call on GKent with an unchanged target price of RM0.78 and made no changes to its earnings forecasts.
“Overall, we see a longer-term mixed outlook for its core business while we remain cautious on execution risks for the glove JV,” the firm said.
