MARC has affirmed its ratings of MARC-1IS and A+IS on George Kent (Malaysia) Berhad's (George Kent) RM100.0 million Islamic Commercial Papers Programme and RM500.0 million Islamic Medium-Term Notes Programme (collectively Sukuk Programmes), subject to a combined limit of RM500.0 million. The ratings outlook is stable. 

The rating affirmation mainly reflects George Kent's stable water metering business and our expectation that the company's 85 years of involvement in this business will continue to generate steady yields. Production was somewhat affected by a temporary plant closure from March to April 2020 due to the COVID-19 pandemic but rebounded with strong 14-month results to March 2021 (FY2021), pointing to a healthy underlying demand for water meters. Annualised, sales volume picked up 32.5% y-o-y while revenue rose 17% y-o-y and segment profit margin gained 7.5 percentage points to 24.6% in FY2021. Sales volume and value in FY2021 (annualised) were also higher than in FY2019, up by 18.1% and 9.2% to 3.64 million units and RM145.4 million. 

Conversely, results from the company's construction activities have been weak over the past couple of years, reflecting vulnerability and dependence of the business on contract flows. Revenue and profit from construction were down 40.3% and 39.6% in FY2021 (annualised) from fiscal 2020. However, a recent sizeable undertaking worth about RM624 million to design and build a glove manufacturing plant in Lumut, Perak, will expand George Kent's order book to around RM780 million which will provide revenue visibility through FY2024.

We note that the arbitration decision on the dispute with a joint-venture partner Malaysian Resources Corporation Bhd on the Light Rail Transit Line 3 project was deadlocked, with both parties currently going through the deadlock resolution process. However, we continue to view that the outcome of the decision will have no bearing on George Kent's ratings as we have not factored in any contrib