Bags New Data Centre Job Worth RM280mn

GADANG has secured a RM280.0mn design and development job for the construction of a data centre (DC) building from TM Technology Services Sdn Bhd, a subsidiary of Telekom Malaysia Bhd in Cyberjaya, Selangor.

This project shall commence on 24 April 2024 and is slated for completion within 24 months from the commencement date.

Our View

GADANG has finally secured its first new job in FY24, increasing the group’s total outstanding order book to approximately RM1.3bn, equivalent to 5.1x FY23 construction division revenue. This achievement also marks the group's first entry into DC construction projects, expanding its prospects to capitalise on the growing DC landscape.

With an estimated PBT margin of 5.5%, this DC project is expected to contribute net earnings of c.RM11.7mn throughout the construction period.

Forecast

Despite securing its first new project in FY24, we expect substantial earnings contributions to kick in from FY25 onward. Consequently, we have revised our progress billing, coupled with an upward adjustment of our FY24 order book replenishment assumption to RM350mn from the previous RM150mn. As a result, our FY25 and FY26’s earnings forecasts are revised upward by 20.1% and 52.8%, respectively.

Valuation

Considering GADANG as one of the strong candidates for upcoming largescale infrastructure projects such as the Penang LRT and MRT3, alongside the potential expansion within the burgeoning DC sector, we adjust our target PER from 10x to 15x against the construction division's CY25 earnings. This revised valuation takes into account a 20% discount compared to SUNCON's target PER of 19x, acknowledging GADANG's smaller market capitalisation. Nevertheless, we believe that this valuation remains equitable, considering the promising earnings trajectory expected over the next two years. All in all, we raise our SOP-derived target price to RM0.42 (from RM0.22). Upgrade to Hold.

Source: TA Research - 29 Apr 2024