George Kent’s New Sukuk Issuance: 3-Year and/or 5-Year MYR Bonds with IPG of 5.00%–5.25%

Highlight

• Revenue and Margin Recovery: After an FY2024 adjusted operating loss of RM8.8 million due to fewer engineering projects, 1H26 revenue rebounded 43% YoY to RM86.0 million, with adjusted operating profit margin improving to 4.1%.

• Metering Segment Strength: Supported by smart meter development (GK Ultra) and government NRW initiatives, positioning the division to benefit from replacement demand and smart infrastructure adoption.

• Engineering Division Rebound: New infrastructure and transportation contracts strengthened the order book of RM87 million, providing near-term earnings support.

• Strong Liquidity Position: Maintains net cash of 9%, current ratio of 5.2 times, and cash-to-short-term debt ratio of 4.8 times, supporting operations and growth despite compressed interest coverage.

• Recommendation: Prefer the 3-year bond due to lower market and sector uncertainties; the 5-year bond may suit investors with higher risk tolerance.

Company Overview

George Kent (Malaysia) Berhad, founded in 1936 and listed on Bursa Malaysia in 1974, is an established engineering and manufacturing group. Its operations are anchored on three pillars:

1. Metering: Manufacturing internationally certified water meters and brass products.

2. Engineering: Delivering turnkey rail, water, and healthcare infrastructure projects.

3. Technology: Providing smart metering and digital solutions to support sustainable growth.

George Kent also operates one of Southeast Asia’s largest hot brass forging plants and exports products to over 40 countries worldwide.

Metering Division Positioned to Capture Non- Revenue Water (NRW)-Driven Opportunities

George Kent continues to enhance its metering segment through innovation and strategic partnerships. In June 2025, George Kent announced a collaboration with Qingdao Topscomm Communication Co Ltd and is expected to introduce GK Ultra, Malaysia’s first locally branded ultrasonic water meter, in the near term. Leveraging Topscomm’s smart metering technology and George Kent’s presence in both domestic and overseas markets, the group is well-positioned to capture growth from the adoption of smart water infrastructure.

The introduction of ultrasonic smart water meters is expected to play a key role in reducing Non-Revenue Water (NRW) by improving leakage detection, enabling real-time monitoring, and enhancing billing efficiency. As Malaysia accelerates its NRW reduction efforts, including the RM3 billion allocation under Budget 2026 for replacing over 820 km of aging pipelines across Johor, Melaka, Negeri Sembilan, Kelantan, Pahang, and Selangor, George Kent stands to benefit from replacement demand for conventional meters and broader smart meter adoption, unlocking potential revenue opportunities.

As shown in Table 1, NRW remains elevated in several states of Kelantan, Perlis, Kedah, Pahang, exceeding 50% in some regions, while Peninsular Malaysia and FT Labuan recorded NRW levels of 34% in 1H25, indicating limited structural improvement over the past five years.

Table 1: NRW Levels by State (%)

Engineering Division Shows Gradual Recovery Supported by New Project

The engineering division of George Kent has shown gradual recovery, supported by newly secured infrastructure and transportation-related contracts. As shown in Table 2, these projects have strengthened the division’s order book to RM87 million and are expected to provide near-term earnings support.

Table 2: Engineering Division – Ongoing Projects

Gradual Recovery in Revenue and Profitability

In FY2024, George Kent reported an adjusted operating loss of RM8.8 million, compared with an adjusted operating profit of RM22.7 million in FY2023. The decline was primarily due to fewer engineering projects following the completion of major contracts in FY2023, while administrative expenses remained relatively high. As a result, the adjusted operating profit margin fell from 9.2% in FY2023 to -6.5% in FY2024.

As shown in Table 3, total revenue rebounded by 43%, rising from RM60.1 million in 1H25 (September 2024) to RM86.0 million in 1H26 (September 2025), supported by growth in both the Metering and Engineering segments. The Metering Division recorded a 27% YoY increase in revenue to RM72.4 million, largely driven by higher local sales, while the Engineering Division rebounded to RM13.6 million, reflecting contributions from new projects highlighted above. The adjusted operating profit margin improved from 2.9% in 1H25 to 4.1% in 1H26, signaling gradual improvement in operational performance.

Compared to peer Ningbo Water Meter (Group) Ltd, which reported an operating profit margin of 4.6% as of June 2025, George Kent’s margin remains slightly lower but within a comparable range. With ongoing growth in both divisions, George Kent has the potential for further margin recovery in the coming year.

Table 3: Revenue and operating profit margin trend

Liquidity Remains Strong Amid Gradual Earnings Recovery

As shown in Table 4, the EBITDA interest coverage ratio remains relatively weak at 1.0 times in 1H26 (FY2025: 0.8 times), mainly due to compressed earnings rather than elevated leverage. Importantly, George Kent maintains a net cash position of 9%, reflecting a conservative capital structure. Liquidity remains robust, supported by cash and bank balances of RM223.9 million, while the cash-to-short-term debt ratio improved from 3.6 times in FY2025 to 4.8 times in 1H26, indicating ample capacity to meet near-term obligations despite tight interest coverage.

In addition, the current ratio increased to 5.2 times in 1H26, suggesting substantial liquidity headroom. Meanwhile, inventory turnover improved from 1.3 times in FY2025 to 1.9 times in 1H26, reflecting better inventory management and improving operational momentum, particularly within the Metering segment. Overall, while profitability recovery remains gradual, the group’s credit profile continues to be supported by strong liquidity buffers and improving operating trends.

Table 4: Key Credit Metrix

Overall, George Kent is gradually recovering its operations, driven by growth in smart water metering and new engineering projects. Supported by strong liquidity and a net cash position, the group is well-positioned to capitalize on Malaysia’s NRW reduction initiatives, unlocking potential revenue opportunities.

Key risks

• High Competition and Policy Dependence in Metering: Metering business faces strong domestic and international competition. Growth also depends on government NRW initiatives and smart meter adoption. Delays in policy implementation, weak uptake, or heightened competitive pressure could limit revenue opportunities.

• Raw Material Price Risk: As one of Southeast Asia’s largest brass forging producers, the group is exposed to fluctuations in copper prices, which could increase cost of sales and compress margins.

• Licensing Dependency Risk: Reliance on a licensing agreement with Honeywell to manufacture and exclusively sell high-precision water meters. Non-renewal or changes to such agreements could result in potential revenue loss.

Recommendation

George Kent plans to tap the market again, likely in early March 2026, subject to prevailing market conditions. The company aims to issue a 3-year bond with an indicative yield of 5.00% and/or a 5-year bond with an indicative yield of 5.25%, targeting approximately RM120 million. The proceeds will be used to refinance the sukuk maturing in March 2026. The bond is rated A+ by MARC with a stable outlook.

We prefer the 3-year bond, as the longer 5-year tenure carries greater uncertainties, particularly due to slower government policy implementation for NRW and construction. Nonetheless, given that George Kent is a well-managed company with over 80 years in operation, and investors with higher risk appetite may also consider participating in the 5-year issuance.

Table 5: George Kent’s Bond