Gadang looks overseas to power up earnings

Tan Sri Kok Onn, the founder of Gadang Holdings Bhd,
is banking on jobs from the utilities industry abroad to help diversify
the company's earnings base.



Kok Onn, who is also the managing director of the company, believes
that venturing into the power business will help provide long-term
recurring income.

He told Business Times this just days after Gadang informed Bursa
Malaysia that it is in the midst of making its maiden effort to break
into the power business overseas.

Last week, Gadang said its
indirect wholly-owned unit Asian Utilities Pte Ltd (AUP) plans to buy a
60 per cent stake in PT Ikhwan Mega Power (PTIMP) for RM3 million.

PTIMP has a power purchase agreement with Indonesian national power
company, PT Perusahaan Listrik Negara, to develop and supply power for
15 years.

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The acquisition of the Indonesian hydroelectric power firm will be Gadang's first venture into the power sector.

"We expect PTIMP to contribute positively to future earnings," Kok Onn said, without elaborating.

AUP was tasked to undertake the Indonesian power asset purchase because
it is well-versed with the business environment in Southeast Asia's
biggest economy.

Over the past six years, AUP has bought controlling interest in five Indonesian water supply companies.

The total treated water supplied by AUP is about 900 litres/second and
the company says it targets to increase it to between 1,500 and 2,000
litres/second within the next two to three years.

The increase will be achieved by expanding current production facilities and via concession expansion.

Contribution
from the utilities division to the group level coffers is still
smallish, with the company's main power still skewed towards the
construction and property businesses.

The utilities division
contributes about a tenth to group-level pre-tax profit and it is Kok
Onn's aim to improve the contribution to 25 per cent in the long term.

For the year ended May 31 2012, Gadang registered a net profit of RM14.5 million on the back of RM246.3 million revenue.

The earnings got analysts attention as Gadang is a company on the go,
just biding its time to join the big league, where players such as
Gamuda Bhd and IJM Corp Bhd dominate the stage.

In the past
seven months, Gadang has received coverage from research houses such as
JP Apex, ECM Libra, Alliance Research and CIMB Research.

The company did not disappoint street consensus, chalking better results each time around.

For the second quarter ended November 30 2012, Gadang's net profit
surged to RM12.2 million versus RM1.1 million posted a year ago, while
revenue for the first six months of the current financial year stood at
RM171.2 million.

For the period under review, the company said
its construction division also recorded higher revenue of RM123.59
million compared with RM80.89 million before, while revenue from the
property division stood at RM53.72 million.

With this in mind,
Alliance Research said Gadang is at an inflection point with 29 per
cent of compound annual growth rate over the next three years.

Gadang currently has an existing order book of RM1.48 billion, which is 7.8 times the company's 2012 construction revenue.

Its tender book is RM4 billion thick, with the Kinrara Damansara
Expressways job valued at between RM1.5 billion and RM1.8 billion and
subcontract works for the West Coast Expressways valued at RM1.3
billion, accounting for the bulk of the tender book.

Alliance
Research in a report last month said Gadang is also the favourite to
win a RM1 billion earthworks contract from 1Malaysia Development Bhd's
Tun Razak Exchange.