GADANG

I remember writing about this stock about a year or two before.  It started, as usual, a recommendation from my fund manager.  I remember it clearly when the fund manager said Gadang is like a mini-IJM.  

Let us take a quick look at Gadang v IJM Corp

Market cap (today)                        491 million      v      12,469 million

I think Gadang do not fit to be called a mini-IJM just yet.  Perhaps when it is 2.5 times bigger from now, say, RM1.2 billion which only constitute one tenth of the size of IJM.  At the moment, we can call it micro-IJM, which is about 4% of IJM's size.

Credit must be given to the fund manager.  When they were recommending it, the price is about RM1.82 per share (18 months back).  Today it is RM2.10 (High is 2.58, should have sold it), with 5 sen dividend.  So total gain is about 28sen + 5 sen = 33 sen gain.  So, a 18% gain is commendable for 18 months investments.  I already reward him with a 1.5% management fee on my portfolio.  Mind you, after his recommendations, I almost got a heart attack, when it continue to DROP to a year low of RM1.13 per share, a drop of about 38%.  As usual, is good to average a stock when it drop >25% when the fundamental of the company is not adversely affected.  

So, naturally, I bought more when it dropped to RM1.38 per share (25% dropped).  The sad part was, it continue to drop to RM1.13, by then, most would agree with me, most will run out of bullet.  So be it.

GADANG 2.0

Last week, my fund manager started to recommend this stocks again, at about RM2.06 per share.

So, should I add in more, because he said his analyst target price is RM2.95.  So potential upside is 43%.  Of course, one have to look for the potential downside as well.  PE about 5x, ROE just started to be above 10%, contract secured(or book orders) and earning for next 2-3 years is VISIBLE with certain growth, limited downside.

For those who do not know about Gadang, it is a construction company with lots of projects in RAPID and MRTs, and recent involve into JV on property development in Johor (Capital 21) - luckily they lauched it in 2013/4 and sale level is OK, i.e. >60%.  And the margin for this JV is good, i.e. >20%.  They also has a water concession in Indonesia.

WHY I LIKE GADANG?

1.  They acquire some land last year (landed property), a good potential for growth.

2.  They owned about 5,180 acres of palm oil in Sabah, young mature at the moment.(should worth about RM250m when mature)

3.  The steady income from the Indonesia concessionaire.

4.  Very visible earnings expectation from conttruction projects.

5.  PE is not demanding at about 5.8x (2017FYE), upside is good (other small cap construction stock is about 10x)

LET'S SEE

I give a thumb up for GADANG.  I replace some of Padini with Gadang.  I believe, Gadang will do a better job vs Padini.  One of the reason I replace PADINI is they put in between RM50 - 100m into Unit Trusts (Equity and Bond).  And due to the volatility of equities, I believe they may suffer a one off impairment.  I am not a great fan when companies put too much cash into Unit Trusts.  Just a personal opinion.  Better used it to do share buybacks if the company is growing and doing well. (Updated 10 May 2016, furhter enquiries with Padini, due to miscommunication, the person I have spoken with corrected her statement today, and reconfirmed with her superior that the amount is put into Unit Trust (MONEY MARKET), hence, there is no risk of capital loss.)

So, what does Warren Buffett said about Gadang? Stop bugging me. Its too small.  It is only USD130 million.  Berkshire Hathaway Inc. is USD350 billion.  We are only 2,700x bigger than you.