Gadang Holdings to have record earnings in FY16

by **Cals** Mon 02 Nov 2015, 19:00

Gadang Holdings to have record earnings in FY16

By JF Apex Securities Bhd / The Edge Financial Daily | November 2, 2015 : 9:57 AM MYT

This article first appeared in The Edge Financial Daily, on November 2, 2015.

[size=16]Gadang Holdings Bhd ([You must be registered and logged in to see this image.] Valuation: 2.40, Fundamental: 1.70)
(Oct 30, RM1.64)
Maintain buy with an unchanged target price (TP) of RM1.98: Gadang Holdings Bhd recorded RM149.4 million revenue and RM20.9 million net profit for the first quarter ended Aug 31, 2015 (1QFY16), with both revenue and net profit decreasing 12.4% and 16.9% quarter-on-quarter (q-o-q) but increasing 12% and 116.4% year-on-year (y-o-y) respectively. The lower quarter revenue and net profit were due to slow progress in the construction segment. On another note, 1QFY16 net earnings increased 116.4% y-o-y due to higher property recognition progress in this quarter.
The three months ended Aug 31, 2015 (3MFY16) revenue and net profit met 20% and 32% of our top-line and bottom-line forecast for the financial year ending May 31, 2016 (FY16) respectively. The strong earnings were contributed by the robust performance in the property segment.
The construction segment marked RM105.7 million revenue and RM8.3 million profit before tax (PBT) for 1QFY16, slid 19.5% and 64% q-o-q as site preparation works in refinery and petrochemical integrated development (Rapid)’s projects are tapering off as they reach tail-end stages.
The newly clinched project, Rapid Package 14-0301, only commenced last month. We believe the low PBT margin of 7.8% (decreased 9.7 points q-o-q) was due to higher portion of Mass Rapid Transit package V2’s progress being recognised which bogged down the segment margin as the MRT job has a lower margin compared to Rapid’s projects.
Going forward, the newly clinched project will act as a key earnings contributor. To date, the current outstanding order book for Gadang stands at RM634.15 million.
The property segment recorded RM38.2 million revenue and RM16.7 million PBT for 1QFY16, increasing 10.8% and 58.3% q-o-q respectively. The stellar performance was mainly contributed by Capital City project in Johor Baru and The Vyne project in Salak South that comprised about 44% and about 25% respectively of PBT for the property segment in 1QFY16. Meanwhile, PBT margin’s surge to 43.6 percentage points (increased 13.1 percentage points q-o-q) in 1QFY16 was attributable to the high margin in the Capital City project. As Gadang plays the role of landowner in the joint venture with Capital City Property Sdn Bhd, cost incurred is mainly land cost. In future, the property segment is underpinned by its unbilled sales of RM189 million with revenue visibility over 1.57 times of FY15 revenue of the property segment.
The utility segment recorded RM5 million revenue and RM1.1 million PBT for 1QFY16, increasing 20.7% and 14.5% q-o-q respectively. The improvement was contributed by the newly acquired subsidiary, PT Dewata Bangun Tirta. It has proposed first and final single tier dividend of five sen per share that will go ex on Nov 26.
FY16 will see record earnings for Gadang ie net earnings are expected to grow strongly at 13.82% y-o-y before normalising in FY17 with net income declining by 12.91% y-o-y due to lower construction revenue in relation to lower order book assumption. — JF Apex Securities Bhd, Oct 30
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