GDB’s 1H21 earnings of RM14.8m (+53% YoY) were within our expectations at 48% of forecasts. We anticipate pick-up in billings in 4QFY21 as vaccination progress is on track for 80% by end Aug (excluding Sabah) which would enable full capacity operations. Orderbook stands at RM1.8bn translating to a sizable 5.0x cover. Cut FY22-23 forecasts by -4% and -8% given the slower pace of replenishment. Maintain BUY with lower TP of RM0.63 pegged to an unchanged 11x P/E multiple ex-cash. We believe this is justified given GDB’s sizable orderbook and high ROEs.

Met expectations. GDB reported 2QFY21 results with revenue of RM80.7m (-27% QoQ, 108% YoY) and core earnings of RM5.2m (-45% QoQ, 33% YoY). The results were within our expectations at 48% of our FY21 full year forecasts . While we anticipate a weak 3Q, a stronger finish to the year is likely with loosening restrictions. Note that quarterly earnings are adjusted for RM0.3m of unrealised investment losses.

Dividends. First Interim DPS of 0.7 Sen Was Declared Going Ex. on 7 Sept-21 (1H20 DPS: 0.67).

QoQ. Core earnings fell by -45% dragged by revenue decline of -27% as construction works were disrupted by enforcement of Phase 1 of FMCO (effective in June). We estimate that only 15-20% of its order book was active during Phase 1 as restrictions imposed by the authorities were fairly strict hitting private building projects the hardest, in our view.

YoY. Core earnings staged a 33% growth aided by higher billings (revenue: +108%) due to: (1) low base effect with 2QFY20 reflecting roughly 4 weeks of hard lockdown and (2) contribution from its 8 Conlay project. The earnings impact from its topline growth was partly diluted by the persistent rise in rebar prices in FY21 resulting in lower PBT margin (-4.9 ppts).

YTD. Core earnings grew by 53% to RM14.8m, achieved through higher revenue of 38%. Drivers of revenue were: (1) low base effect with 2QFY20 reflecting roughly 4 weeks of hard lockdown (2) contribution from its 8 Conlay project and (3) advance phases of construction for some project sites.

Outlook. GDB’s orderbook stands at RM1.8bn translating to a sizable 5.0x cover on FY20 revenue to be executed over the next 2-3 years. Replenishment has been difficult this year after: (1) dialling back on tenders after a bumper FY20 and (2) restrictions from Covid-19 steeply reducing tender opportunities in FY21. We believe the award conversion period has lengthened given current restrictions. As such, we have written off replenishment for FY21 but maintain assumptions for FY22 & FY23. As for execution, management is working on vaccinating its workers which should enable for a pick-up in billings in 4QFY21. Two of its major sites have been allowed to resume recently and management targets 80% vaccinated rate (excluding Sabah) by end August which would enable full capacity operations for 90% of orderbook.

Forecast. Cut FY22 and FY23 earnings by -4.4% and -8.0% after revising our replenishment assumption for FY21.

Maintain BUY, TP: RM0.63. Maintain BUY with lower TP of RM0.63 (from RM0.66) post earnings adjustment. Our TP is based on FY22 EPS of 5.2sen pegged to an excash PE multiple of 11.0x. 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 - 20 Aug 2021