GDB orderbook to drive earnings and dividends

HLIB has a ‘Buy’ call on GDB as its orderbook has quadrupled since FY18 to RM2.2b


GDB Holdings Bhd is poised to experience a stronger earnings cycle underpinned by its larger oderbook, according to Hong Leong Investment Bank Bhd (HLIB).

The investment bank has a ‘Buy’ call on the developer with a target price of RM1.37, premised on a stronger earnings cycle between financial years 2021 (FY21) and FY22F.

GDB’s orderbook has quadrupled since FY18 to RM2.2 billion, the bank noted in a research note on the company yesterday.

“We expect earnings to more than double in FY21 to RM61 million. Building on its short, but impressive execution track record, we see job flows continuing supported by sizeable development projects undertaken by its repeat clientele,” HLIB stated.

GDB’s target price is justified given the company’s sector high orderbook cover and sector-leading return-on-equity ratios.

Key risks include execution, rising material prices, political fluidity and Covid-19 setbacks, the bank noted.

The target price is based on the earnings per share in FY21 of 9.7 sen pegged to ex-cash private equity (PE) multiple of 13 times.

“Our target PE multiple implies a 13% discount to our 15 times ex-cash target PE multiple for Sunway Construction Group Bhd to account for its small-cap discount.

“Our target price implies an upside of 39.1% with 3% dividend yield,” HLIB said.

GDB is expected to stick to its dividend policy of paying a minimum of 30% of net earnings yearly.

Yields for FY21-FY22F are boosted by expectations of stronger earnings for GDB moving ahead, the bank added.

GDB’s FY20 earnings are expected to come in at RM27.7 million, which is a 5% year-on- year decrease, but is significantly better than the 20% to 80% estimated decline for other construction players.

“GDB is on course to record a commendable 3% revenue growth in FY20 despite various operational halts (from Covid-19 headwinds) just by executing larger contracts it won in FY19.

“We expect FY21 and FY22 earnings to more than double to RM60.7 million and RM62.4 million in tandem with its enlarged orderbook,” HLIB stated.

GDB has a debt-free balance sheet, pairing with healthy turn- over ratios makes for a burgeoning cash pile.

“We expect GDB’s cash pile to grow in FY21-22 in tandem with stronger earnings forecast buoyed by normalising collection post-pandemic,” the bank’s report read.

GDB’s management is also priding on an unblemished track record of early project completion leading to substantial savings on running costs and establishing a widening clientele base.

Some of its existing recurring clients like TRC Synergy Bhd and Hap Seng Land Sdn Bhd are in the middle of embarking on sizeable development projects which augurs well for GDB’s future job prospects.

GDB has been operating as a main contractor and principal works contractor, specialising in high-rise residential, mixed and commercial developments since its inception in 2013.

The group has delivered a total of RM1.4 billion worth of projects since, and was listed on the ACE Market in 2018 and transferred to the main board last year.