Results Review

• Gadang’s 1QFY20 net profit of RM14.8mn came in within expectations, accounting for 25.2% and 23.5% of ours and consensus’ full-year estimates.

• YoY, despite 1QFY20 revenue rising 14.3% to RM147.6mn, the net profit was 10.3% lower at RM14.8mn. Construction division recorded a 55.2% surge in revenue as the progress of on-going project accelerated. However, this was partially offset by lower property revenue, which declined 38.1% to RM33.4mn on the back of subdued property market. The drop in the quarterly earnings was mainly dragged by property division which recorded a drop in revenue, coupled with lower margin which declined 8.7%-pts to 16.6%. Construction PBT margin improved marginally to 15.6%

• QoQ, the bottom line rebounded strongly from a net loss of RM3.4mn to register a normalised net profit of RM14.8mn. This was mainly driven by a strong construction margin recovery from 0.1% to 15.6%, which resulted construction PBT to surge from RM0.1mn a quarter ago to RM16.8mn. This was despite the fact the construction division recorded lower revenue by 18.7% at RM108.0mn. The immediate preceding quarter was also dragged by the loss of RM4.8mn incurred on investment in quoted shares.

Impact

• Maintain FY20 to FY22 earnings forecasts.

Outlook

• The outstanding construction order book stood at RM1.14bn versus RM1.24bn a quarter ago. This is expected to provide earnings visibility to the group for the next 2 years. Supported by its track record in earthwork, Gadang is seen to be one of the front-runners for East Coast Rail Link work packages.

• For its property division, its unbilled sales improved further to RM126.5mn from RM119.3mn a quarter ago, boosted by the newly launched town house project in Putra Perdana, Puchong, Selangor. It achieved property sales of about RM33mn for 1QFY20, versus RM163mn recorded for the full-year FY19.

Valuation

• Maintain Buy on Gadang with an unchanged target price of RM0.77, based on SOP valuation

Source: TA Research - 24 Oct 2019