Neo says that GKE could have sold more ready-mixed concrete. There is demand, and the two plants are running at just half their capacity. He explains that the company has been reluctant to accept more orders because there is a pile of receivables, and his auditors made it clear that GKE has to provide for some of these sales where payment has yet to be collected. “The business is there, but you have to tahan (a Malay word meaning “endure”) the drag,” he says.
Nonetheless, Neo is optimistic that things are turning. Half of the ready-mixed concrete sales are to local government-linked customers in infrastructure projects, and the other half to private project owners. In recent weeks, China’s government has laid down a new policy to make sure that local governments, whose own finances were affected because of the slowdown in the property market, need to make good on what they owe to suppliers like GKE. “I believe they are doing this to give more confidence to the market,” says Neo.
As an indication, GKE has reduced the provisions needed. Neo points out that the first two months of the financial year, August and September, were affected by local weather conditions and while orders dropped, there has been a strong pickup since, and Neo believes revenue from ready-mixed concrete this current financial year should see further improvements. “If the market recovers, we will push ahead. The central government continues to push for more infrastructure projects in the coming years, and we will see steady improvement,” he says.
On July 28, GKE reported that its infrastructural materials and services segment, which consists largely of the ready-mixed concrete business, reported FY2025 revenue of $24.3 million, a 20.9% jump over FY2024. Warehousing and logistics in the same year were up 6% y-o-y to $94.7 million, for a total increase of 14.4% to $126.5 million. Earnings, due to all-around improvements, doubled to $8.85 million.
Ride the wave
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To capture this growth momentum, GKE on Oct 16 announced a strategic review that may include a spin-off listing of its ready-mixed concrete business. Neo believes that the timing of this proposed spin-off will be just nice. Construction and infrastructure-related stocks are now in favour. This business can have its separate balance sheet to raise funds to capture the growth opportunities that are resuming. With the new capital from the listing, its own management team can explore acquisitions of related businesses in infrastructure, either in China or even here in Singapore. Neo, meanwhile, can focus on growing the warehousing and logistics businesses, which remain the company’s largest turnover and earnings contributors.
This proposed spin-off aside, GKE Corp was in the news recently for joining the growing line of Singapore Exchange (SGX)-listed companies raising new capital from placements. On Oct 3, the company announced it had sold 88.12 million new shares at 9.68 cents each to raise gross proceeds of $8.53 million. The placement shares will enlarge the company’s share capital by 11.44% to 858.60 million shares. The investors include ICH Capital, headed by Vincent Toe, Alan Wang of Asdew Acquisitions, and Astral Value Fund VCC.
Besides buying the shares at a discount of 9.87% of the last traded price, the new investors get to enjoy a bumper final dividend of 0.35 cents per share, which went ex-entitlement on Oct 9. This means a full-year payout of 0.4 cents, double that of FY2024’s 0.2 cents, which was the same payout ratio of 30%. There is no lockup as well, which means these investors can cash in right away, although Neo believes they won’t sell — at least, not at current price levels.
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Neo says that he could have borrowed the funds raised from the placement from banks. He has another reason for accepting these placement terms. He believes that with Singapore’s market getting more buoyant, doing a placement now to these investors can help attract some wider market attention to GKE’s shares, which have remained rangebound at between 7 and 10 cents for years. “The market is recovering, and we want to ride the wave. There’s no need to stand firm and be insistent on our terms. Let’s have some to and fro, and some give and take,” says Neo.
The bulk of the funds from the placement, of some $6 million, will be used to undertake an extensive expansion and refitting of 7 Kwong Min Road, used by GKE to store dangerous goods. This property, with a total space of 43,000 sq ft, came under GKE after it took over Marquis Services. It first took a 70% stake in Marquis Services for $2.9 million in Oct 2015, before acquiring the remaining 30% for $2.7 million in April 2021.
The extensive works at this property will take more than a year, and the space can only be back in use at the end of 2026, which means the annual earnings of around $2 million, plus those generated from this space, will be foregone temporarily. Nonetheless, the works will help extend the useful lifespan of 7 Kwong Min Road by another 25 years, and the capex committed can be made back in three years or so. Existing customers will be able to shift their inventory to GKE’s 6 Pioneer Walk facility during the renovation period.
Neo believes GKE is one of the leading local players who can provide warehousing and logistics services to dangerous goods, which can command higher rates than general cargo. Its main facilities at 39 Benoi Road and 30 Pioneer Road are extensively fitted with the necessary capabilities, giving GKE plenty of experience in this business segment. There are other local players with bigger spaces to handle dangerous goods, such as Poh Tiong Choon, and Cogent — a subsidiary of Cosco Shipping Corp, which is also listed on SGX.
However, their facilities are located on Jurong Island, the oil and chemicals hub, which, for security reasons, has stringent security involved. Drivers, for example, have to be pre-registered, reducing operational flexibility. In contrast, GKE’s spaces are all on the mainland, and therefore, the logistics are easier to manage.
Dubai beckoning
To Neo, this expertise in handling dangerous goods is the key plank in how GKE is rolling out its expansion plans, which include a significant expansion in Dubai. GKE is now finalising a deal with DP World. Up until 2016, DP World was a port operator. Since then, it has steadily acquired other warehousing and logistics companies to expand its reach in this industry segment. DP World, since the emergence of Dubai as a modern business and trade centre, has also become a global player in marine transport, inland terminals, industrial parks, and supply chain management.
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At the Jebel Ali Free Zone, or Jafza, DP World is constructing a build-to-suit warehouse with a space of 250,000 sq ft, where, besides general cargo, it will have dedicated space for the storage of dangerous goods. Neo plans to sign a long-term lease of 20 plus five years with DP World to rent the space and manage the facility.
Right now, there is plenty of space for general goods but less so for dangerous goods. There is demand, but it’s met in ad-hoc or inconsistent ways. Some look for “grey” storage areas, while others try to rely on just-in-time shipments. Nothing beats a proper storage space for dangerous goods, which can provide buffers.
Despite having this ability to command rates of around a third higher compared to general goods, Neo says that existing warehousing and logistics service providers are reluctant to upgrade their existing facilities to meet what is required to handle dangerous goods, as it is not as straightforward. Neo believes that if he can properly fit out space for dangerous goods, he will be in a good position to attract multinational clients. “They face audits; they need to be compliant. If you are willing to invest, your customers will stay with you,” says Neo.
The 250,000 sq ft space will only be ready in a couple of years. Meanwhile, GKE has already started renting a smaller 50,000 sq ft space on a three-year lease so that its local Dubai team can get started.
Neo is upbeat that the Middle East will see plenty of growth in infrastructure and logistics. Many countries in the region have the infrastructural capacity to manage their own domestic development. Dubai, decidedly more outward-looking, is trying to be a key transhipment hub. “I see plenty of growth in the next 10 to 15 years,” he adds.
