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SOS Gadang, why is EPF accumulating this stock?

sosfinance
Publish date: Wed, 10 Jan 2018, 06:37 PM
sosfinance
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VALUATION DOES NOT DETERMINE THE PRICE, IT'S JUST A TOOL TO ESTIMATE A VALUE OF A BIZ

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.....IS THIS ARTICLE FAKE OR FACT?? ANYONE CAN CONFIRM?
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WHY IS EPF + MD ACCUMULATING GADANG SHARES?

GADANG - 659 MILLION SHARES

1.  Announced on 11 Aug 2017 - became substantial sharheolder - owns 33.0 million shares or 5%.

2.  Announced on 22 Aug 2017 - ceased to be a substantial shareholder - after selling 0.70 million shares.

3.  Announced on 9 Jan 2018 - bought another 0.5 million shares, bring it to 40.5 million shares or 6.14%.

4.  I take it as a positive development, as Gadang attracted this "blue chip" shareholder.  

5.  Similarly the MD also bought around 7.0 million share with highest at RM1.28 per share (in May 2017).

6.  Again, I take it as a positive development, or at least neutral, as it only represent 1% of the total of 659 million shares.

7.  In a short run, the market behave like a voting machine, i.e. it is based on popularity.  As we can see, many stocks went up over the last one week until today, 10 Jan 2018, correction perhaps.  Volume exceeded 5 billion shares, this is consider very good comparing with the last 6 over month, volume around 2 billion (consider quiet, or half dead).

8.  Why should we take note of EPF and MD's purchase of Gadang.  I remembered in 2016, the MD sold a couple of million shares at RM2.90.  Why is he buying back (more) at RM1.29 (RM3.20 before bonus and split and free warrant, and 7sen dividend)? I understand the MD is quite a conservative person, based on its selection of projects. 

9. The closes relation EPF has with Gadang is the Kwasa Land deal (Sg Buloh).  I believe, EPF sees the potential in Gadang, else wouldn't be accumulating up to 40 million shares in a quiet market since Aug 2017.

 

WHY WAS GADANG UNDER APPRECIATED?

1.  Could it be lack of IR work?

2.  Analysts underestimated its potential?

3.  Not sufficient contract order? Well, it has close to RM2b, much better than in 2016 when it was left with RM600m.

4.  Analysts is not aware of its Capital City 21 potential? As clearly disclosed in the AGM, still has about RM260m to be recognised (for next 2-3 years).

5.  It may be frustrating, to use logic to understand today's market.  When some shares has poorer results or contract order trading at historical PE of 18x, while Gadang only traded at about 7x.  It is even irrational that Gadang next 3 years average will be expected to be trading at 5.6x PE as compare with the market PE accorded to small cap stocks of about PE of 10-18x.

6.  Perhaps this is the opportunity.  It is a general principal to enter the market when the market is quiet, and exit when it is hot.  Similarly, for individual stock, we should accumulate them when it is in the quiet mode, not during the hot mode (when volume goes up 10-20x the average). (Example: Ekovest when trading at 90 sen)

7.  I believe in the long run (12-18 months), when the positive (better than expected) results is announced, many will come to appreciate this stock, and accord it with a higher rating.  By then, perhaps, you can reap 10 times the FD rates.  What is needed is simple, and yet difficult to follow, the right temprement.

 

(At time of writing, the stock is traded at RM1.14 per share.  TP: above RM2.00 within next 2 years).

 

For referencing only:

  Latest PAT 3 yr avg PAT (F) Mcap PE (x) EY+DY (%)
Gadang RM100m RM130m* RM738m 5.6 16
KP PLC RM100m RM156m RM2,303m 14.8 6

KP PLC is a contractor specialising in construction of high rise properties & commercial buildings.

*conservative estimates, due mainly to Capital City project remaining RM260m (to be recognised), most analysts underestimated the contribution from this project due to its complexity of acounting recognition and schedule of payments.

Both companies has orderbook (construction) of about 3 years to 3.5 years.

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Discussions
4 people like this. Showing 5 of 5 comments

Flintstones

Dwindling property billings is the problem. If you look at the earning structure, gadang is half a property company. So separate valuations have to be given to two different business. Currently, property business is valued at 6-7x PE. The market will appreciate gadang better when information regarding money flow from capital 21 is more clear

2018-01-10 22:46

bluefun

Thanks for good sharing SOS Finsnce bro, let's patience & confident wait for great rewards :)

2018-01-10 23:30

sosfinance

1) Agree, dwindling property billings is a concern, similar to its dwindling construction contract in 2016 of about RM600m. They are launching about RM500m before FYE2018 and also planning for another GDV of RM3-4b in the pipeline (including Kwasa Land and others)

2) Yes, many are concern that its property segment may have a "drastic" drop from FY2017 (as it contribute close to 50%) due to poor property market sentiment. The concern are valid, however, it was clearly disclosed during the AGM, Capital 21, the billed sales is about RM43m, and there is about RM260m yet to be recognised (in the minutes),

3) In fact going forward, the Group segment earning structure could be 45:55:5 for Construction:Property:Concession Assets. Look at Scientex, its property segment grown way pass its original manufacturing segment with earning contribution of 2:1. Even for IJM Corp or Gamuda, in their earlier years, they went through this stage, where property is part of their segments, and concession assets also came in. We should look at how the Group allocation of their resources and profit margin (which shown they are competitive) and the momentum of growth they are creating.

4) The management already disclosed in the minutes of its AGM, RM60m recognised and about RM260m to go over next 2-3 years on Capital 21 alone. Well, when a stock is unpopular, it may take more time to appreciate this issue, meanwhile, the darlings of the market now is Oil & Gas. Who cares about property? Isn't it an opportunity, do you buy when the market is hot? or when no one care?

2018-01-11 07:51

sosfinance

Some seminar said, focus on growth stocks (e.g. KESM) rather than undervalued stocks (I agree). Some see Gadang as an undervalued stocks, actually it is a growth stock as well (but fall under the unpopular sector at the moment). 1-3 years down the road you will know. What is the point of investing in growth stocks when it is fully valued (i.e. taken into account future growth into the price)?

2018-01-11 09:53

sosfinance

For those who are not familiar with Capital 21 project. Gadang only contribute the land in the JV, in return, given a 16.7% share of GDV of the entire project. Based on initial agreement, the total share of GDV is up to RM300m, but later adjusted to about RM320m due to higher adjusted GDV.

GENERAL STATEMENT
Many are talking about Johor properties are 10 or 20 years ahead of its time, including some Johorean who stayed in there (General statement).

FACTS
However, what they are not aware is, about 70% of the share its entitlement will be paid to Gadang upon completion of the Non-HDA component, i.e. the retail segment of the project, which is expected to be launched by August 2018 (As per Capital City Limited, the developer of the project). Hence, major chunk will be recognised by August this year or plus minus few months of delay.

FACTS
The share of profits (on GDV) is based on construction progress. It has nothing got to do with how well the project does after one day or 10 years later. Even Capital City failed after a few years, Gadang would have received all its portion on the share of profits (as per management in the minutes of AGM - within 2 years).

FACTS
Gadang has about RM3-4 billion of GDV to be launch over the next few years despite the low unbilled sale on the property. Hope this clear the misunderstanding.


Valuation does not determine the share price.

2018-01-15 22:34

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