Background

Gadang Holdings Berhad was incorporated in Malaysia on 6 October 1993 as a public limited company under the name Lai Sing Holdings Berhad. It was listed on the second board of Bursa Malaysia Securities Berhad on 2 September 1994 under the construction sector. In 1997, Tan Sri Dato’ Kok Onn who is the Managing Director cum Chief Executive Officer became the major shareholder and took over the operations of the Company and renamed the Company as Gadang. Gadang was subsequently transferred to the Main Board under the same sector on 24 December 2007.

Gadang is an investment holding company while its subsidiaries are principally involved in civil engineering and construction, property development, water supply, mechanical and electrical engineering services and oil palm plantation. To gain a stronger footing in business with recurring and sustainable income, 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. The Group operates primarily in Malaysia.

Based on Financial Year (FY) 2016’s full-year results, Gadang has achieved RM 676 million turnover, which is considered to be mid-size enterprise. Other aspects of the company’s latest financial results are illustrated in the table below.

Gadang's revenue has been increasing for 5 years in a row, starting from RM246 million in FY2012 to RM 676 million in FY2016, representing a 2.74 times increase in 5 years or an average year to year increase of 28.7%.

Net profit wise, Gadang has also increased its net profit by 6.5 times from RM 14 million in FY2012 to RM 94 million in FY2016, or an average year to year increase of 60%. This is a remarkable as the magnitude of profit increase is much higher than revenue. Net profit margin wise, Gadang scores a 13.9%, which is consider high for a conglomerate company with mixed industries, and also a good return on equity (ROE) at 17.85%.

One notable findings in the company’s net profit margin is that it has increased more than double from 5.8% to 13.9% in 5 years, showing efficient resource utilisation, continuous improvement in products to command higher premium in the market and venturing into higher margin industries to boost overall profit margins.

On company’s debt, Gadang has an acceptable 0.41 total debt to equity ratio, meaning 41% of its company value are from long and short term borrowings. The company’s current ratio and cash ratio are of healthy levels at 2.65 and 0.60 respectively.

In terms of dividend, it is slightly low at 1.89% dividend yield. One notable aspect is that Gadang has a low dividend payout ratio of 0.172, signifying that the company retains majority of its earnings for capital expenditure which promotes long term growth.

In conclusion, Gadang is a mid-size enterprise with consistent year-on-year growth in both its revenue and net profit. This explains why its share price remains in the growing trend most of the time and currently it is close to its all-time high.

Although Gadang has businesses in multiple industry, 75% of its revenue are contributed from Civil and Building Construction sector. Due to its involvement in infrastructure projects such as Mass Rapid Transit in Klang Valley, and it has secured up to RM 800 million in its order books, enough sustain its revenue for 2 to 3 years. As construction projects are still in demand in Malaysia, outlook for the company remains positive for investors who are looking at longer time horizon perspective, provided Gadang can continue to deliver good financial performance for 2016 and beyond consistently.

Next quarterly results announcement should be on the month of Oct 2016 for Q1 results.

iVolume Spread Analysis (iVSA) & comments based on iVSAChart software – Gadang

On Gadang’s 6-month weekly chart, the stock was building a nice trend channel around RM2.00 to RM2.15 levels with a few Sign Of Strength (green arrows) detected. It has since broken out of the trend channel around mid-July after many weeks of accumulation by strong hands.

For traders with short term view, do look out for more Sign Of Strength (green arrows) before accumulating as it is anticipated that Gadang will pullback or move sideways in the short term.

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