What’s new

• The group announced that its wholly-owned subsidiary, Gadang Engineering (M) Sdn Bhd has on 20 August 2018 received and accepted a letter of award from TRX City Sdn Bhd to undertake the proposed construction and completion of Public Realm Works (Phase 1) at Tun Razak Exchange.

• Contract sum for the project is RM86m and shall commence on 1 September 2018 and to be completed by 3Q2019.

Comments

• Outstanding orderbooks stands at RM1.59b after accounting for this newly clinched project. The outstanding jobs will sustain the group’s revenue visibility to 2.5 years or 2.5 times of FY18 revenue.
• The project meets 28.7% of our target orderbook replenishment for FY19. Our target orderbook replenishment for FY19 is RM300m.
• The project could translate into EPS of c.1sen spanning across one year. Assuming net profit margin of 8%, the project could contribute RM6.88m to the group’s bottom line.

Earnings Outlook/Revision

• We retain our earnings forecasts for FY19 and for FY20 as the project clinched is within our target orderbook replenishment.

Valuation/Recommendation

• Maintain BUY on Gadang with an unchanged target price of RM1.21. We peg our valuation to 8.7x FY19F.

• Looking forward, we are sanguine on Gadang’s earnings which will be underpinned by property unbilled sales of RM 101m on top of its sizeable construction order book of RM1.59b.

Source: JF Apex Securities Research - 21 Aug 2018