GDB’s 1Q21 earnings of RM9.5m (12% QoQ, 67% YoY) were below ours and consensus expectations mainly due to 14-17 days suspension at two project sites as Covid-19 cases were detected. Both projects constitutes c.24% of orderbook. Orderbook stands at RM1.9bn translating to a sizable 5.3x cover. Management maintains their FY21 RM500m job target to materialise in 2HFY21. Cut FY21 forecasts by -14% but raise FY22 earnings by 7%. Maintain BUY with lower TP of RM1.13 pegged to an unchanged 13x P/E multiple ex-cash. We believe this is justified given GDB’s sizable orderbook and high ROEs.

Missed expectations. GDB reported 1QFY21 results with revenue of RM111.1m (- 13% QoQ, 11% YoY) and core earnings of RM9.5m (+12% QoQ, +67% YoY). Performance came in below expectations at 16% of our and consensus full year forecasts. Note that earnings are adjusted for RM0.7m of investment losses.

Deviations. The disappointment was topline driven with revenue for the quarter making up only 14% of our FY21 forecasts we believe due to: (1) interruption from imposition of MCO2.0; requiring workers quarantine and testing and (2) closure of two sites for 14-17 days; positive cases were detected.

Dividends. No DPS was declared. Dividends are normally declared in 2Q and 4Q.

QoQ. Despite decline in revenue (-13%), core earnings were higher by 12% aided by finalisation of accounts for completed projects and contribution from its 8 Conlay project. Topline was lower having completed its Aira project in 4Q20. We gather that positive Covid-19 cases were detected among workers for their Perla and Park Regent projects resulting in a 14-17 day shutdown. Both projects we estimate to be c.24% of outstanding orderbook. Additionally, GDB’s operations were also temporarily interrupted by imposition of MCO2.0 which required testing and quarantine.

YoY. Core earnings grew by 67% lifted by stronger revenue (+11%) due to higher value of works from advance construction stages, contribution from 8 Conlay and low base effect with strict lockdown imposed on 18 March 2020.

Outlook. GDB’s orderbook stands at RM1.9bn translating to a sizable 5.3x cover on FY20 revenue to be executed over the next 2-3 years. Management maintains their FY21 RM500m job target to materialise in 2HFY21 while we have pencilled in a more conservative RM400m. Orderbook aside, productivity could remain constrained by SOP compliance which we believe would be more stringent in light of MCO3.0 given emerging virulent strains. Nonetheless, we understand that 2Q21 (as of time of writing) has not seen further disruption. On the costs side, rebar prices have continued their upward trajectory since late last year to c.RM3k per tonne which should squeeze built in margin buffers. We estimate c.40% of orderbook are undergoing/to undergo higher steel intensity phases and thus would bear the brunt of high prices should they stay elevated.

Forecast. Cut our FY21earnings by -14% but increase FY22 earnings by 7% after delaying progress billings to next year.

Maintain BUY, TP: RM1.13. Maintain BUY with lower TP of RM1.13 (from RM1.32) post earnings adjustment. Our TP is based on FY21 EPS of 8.0sen pegged to an ex cash PE multiple of 13.0x. We believe this is justified given GDB’s high orderbook cover as well as high ROEs. Key risks include execution, rising material prices and Covid-19 setbacks.

Source: Hong Leong Investment Bank Research - 19 May 2021