Gadang’s ‘Buy’ call for construction approval, property sales


THE outlook on Gadang Holdings Bhd appears rosy as the group has received approval earlier than May 2020 to resume progress on its construction projects, while netting favourable property sales in its third-quarter ended Feb 29, 2020 (3QFY20).

Subsequently, JF Apex Securities Bhd upgraded the company to ‘Buy’ from a previous ‘Hold’ call, with a higher target price of 48 sen versus 42 sen previously.

It also upgraded its forecasts for the group’s earnings in the FYs ending May 31, 2020 (FY20), and FY21 by 15.1% and 27% respectively, with the early construction approval expected to contribute positively for its 4QFY20 and the “impressive” 3QFY20 property sales to offset any potential inactivity.

“However, we expect a slew of uncertainties to emerge with an unforeseeable second half of calendar year 2020 outlook, such as a potential city lockdown for the second wave of the Covid-19 pandemic,” JF Apex wrote in a recent note.

It also said Gadang will face difficulties in the residual year as orderbook replenishment is at risk, coupled with invisible policy guidance and the construction down-cycle to persist.

Gadang’s move in December last year to acquire a Singaporean earthwork company, which focuses mainly on piling, is seen as favourable as the local market is full of uncertainty while Singapore has a few public construction infrastructure plans — such as the Integrated Waste Management Facility, Changi Airport Terminal 5, Jurong Region MRT (mass rapid transit) Line and Cross Island MRT Line.

“We are confident that Gadang will secure some public construction projects in Singapore based on its commendable track records in the past,” the research house said.

Gadang could also mitigate property supply glut issues by launching residential properties or which there is high demand, such as landed houses in Puchong, Selangor, as such projects are expected to remain resilient throughout the year.

Malaysia’s unsold units of residential houses rose to 57,000 units in 2019, marking an 11.2% rise in volume and a 16.1% increase in terms of value. The bulk of unsold units comprised high-rise units, which pose a bumpy road for property developers.

While the economic impact of Covid-19 is still yet to be fully determined, Gadang’s RM887 million orderbook and RM107.8 million worth of unbilled sales will keep the group busy for the next two years, as well as buffer the stagnant property market.

The company’s net profit fell 24.6% to RM10.03 million in 3QFY20 from RM13.3 million recorded in the same period last year due to reduced earnings from the construction division.

Revenue increased 3.32% to RM212.14 million from RM205.33 million previously.

“Revenue increased mildly by 3%, but the increase in administration expenses and operating expenses to RM11 million/RM5.5 million (+37%/+44%) offset the operating profit to RM19.9 million (-15%).

“To make matters worse, the elevation of finance costs (75%) and widening loss for joint venture (425%) eroded the bottom line radically to RM10.1million (25%),” JF Apex noted.

On a brighter note, the group’s property segment achieved RM60 million in sales (+68%) and RM14.4 million in profit (+183%) on the back of favourable sales from Elegan @ Taman Putra Perdana, Puchong, which was launched in August 2019.