GADANG had entered into a pre-bid consortium agreement with DWL Resources Bhd to bid for infrastructure works within the next 12 months. With GADANG involved a lot in the civil engineering and construction works, we do not rule out the possibilities of this consortium to bid for future ECRL works. Besides, GADANG’s sizeable orderbook of RM1.3bn as of end-Feb19 could sustain them for another 3-4 years based on FY18 construction revenue. Technically, GADANG is up trending with a short term consolidation breakout above RM0.83, next resistance is located around RM0.92-0.94, with a LT target at RM1.00. Support at RM0.79-0.805, with a cut loss set below RM0.78.

Company profile. GADANG is involved in (i) civil engineering and construction (earthworks, highway and interchanges, bridges, piling and foundation works, design & build works and MRT works), (ii) property development, (iii) utility (mini-hydro plant) and (iv) mechanical and electrical engineering services. Under its utility segment, GADANG has made inroads into hydro power generation in 2014 by acquiring 60% stake in PT Ikhwan Mega Power, the holder of a 9 megawatt hydro power concession in Kabupaten Tanah Datar, Sumatera Barat for a period of 15 years.

Gadang-DWL may take part in bidding for infrastructure projects. GADANG had on 18 April 2019 entered into a pre-bid consortium agreement DWL Resources Berhad (consortium will last 12 months) to work with each other to bid for infrastructure projects and if successful, will jointly undertake a contract for such infrastructure works. Although GADANG has clarified in the Bursa announcement (22 April) that there is no official tender for the newly revived ECRL projects, we do not rule out the possibilities of GADANG to bid in the future, given their expertise (in rail works) and good track record in the civil engineering and construction segment.

Healthy earnings visibility on the back sizeable construction orderbook.

Construction is the core driver for GADANG and it has RM1.3bn of orderbook (3.4x cover on FY18 construction revenue) as at end-Feb19. Construction projects include RAPID, Klang Valley MRT2, TRX, and Cyberjaya Hospital.

Short term consolidation breakout. Before March, GADANG is still hovering below SMA200, suggesting that the downtrend was intact. However, after several higher highs and higher-lows formed over the past two months, it has turned into a positive trend, accompanied by higher trading volumes. The MACD Line is still hovering above zero, with the MACD Histogram on a recovering note. Meanwhile, both the RSI and Stochastic oscillators are hooking higher; suggesting that the positive momentum is intact. As GADANG has performed a short term breakout above RM0.835, next target will be located around RM0.92-RM0.94, with a LT target pegged around RM1.00. Support will be anchored around RM0.79-0.805, with a cut loss set below RM0.78.

Source: Hong Leong Investment Bank Research - 8 May 2019