Results

• Gadang reported a net profit of RM0.3m for its 4QFY20 result as compared to a net profit of RM10.1m in its 3QFY20 and net loss of RM2.9m for its 4QFY19.
• Sluggish QoQ earnings. The Group delivered a lower revenue of RM115.6m (-45%) and profit before tax (PBT) of RM6.6m (-61%) no thanks to lower recognition of construction progress as well as closure of property sales galleries mainly due to MCO lockdown period. Meanwhile, we witnessed EBIT down substantially to RM6.9m (-65%) from RM19.9m.
• Better YoY performance. Revenue decreased substantially by -37% from RM187.4m mirroring the aforementioned reason. Positively, operating profit increased slightly to RM6.9m (+6%) largely driven by near to zero “other expenses”. Hence, the lower of other expenses (-99%) lifted the PBT to RM6.6m (+63%).
• 12MFY20 below expectations. The Group recorded RM673m revenue which decreased 2% YoY. However, higher operating and administration expenses (+18%/+12%) dragged the operating profit to RM64.7m (- 14%). As a result, full year net profit fell to RM36.1m, which tumbled 18%. We deem the Group’s 12MFY20 result below our/consensus expectations, matching 82.5%/90% of full year net earnings forecast. We anticipate better quarter ahead pursuant to the easing of lockdown and restarting of economy activities which would accelerate the performances of construction and property sectors.

Comment

• Rebounding of economic activities. We opine that Gadang will clinch more construction contracts moving forward after recently secured two packages of ECRL contracts amounting to RM81m. A tremendous amount of stimulus package, record low interest rates and positive development on vaccine would help to stimulate economy further in which people will return to pre COVID-19 living behavior.

Earnings Outlook/Revision

• We maintain our FY21F net earnings forecast and introduce our FY22F net earnings forecast of RM60.4m on the back of acceleration of economic rebound from March’s bottom as well as firm government stance in supporting traditional business sectors in tourism, oil & gas, and services.

Valuation & Recommendation

• Maintain BUY with an unchanged target price of RM0.59. Our revised target price is pegged at unchanged PE multiple of 9x FY21F EPS amid gradual pick up in construction activities and awards.

Source: JF Apex Securities Research - 30 Jul 2020