Jay, if you are uncertain, why didn't you clarify with the CFO? Imagine, if you put in a big portion of your net worth, don't you want to know? People here keep on assuming this, assuming that, saying this saying that, isn't this info available with the management. If they refuse to give you, then, don't touch it, because this may be very critical to the income generator, don't you agree?

tksw, the development costs is principally comprise of freehold lands, basically is purchase of Semenyih land (RM98.7m) and Cyberjaya Land JV (RM141m) - as stated in Note 16 and Note 30 of the Annual Reports. Nothing got to do with Capital 21 development cost.

Yes, I am aware that the Retail Podium (Shopping Complex) is about RM1.3b and remaining RM500-600m is soho & hotel. Retail Podium's share of PBT is about RM220m, and only about RM38m recognised. It is all CASH for Gadang based on progress billing. Padang don't need to come up with a single sen of development cost. Is a very good cash generator.

Kwasa Land, until we can see the details, a conservative assumption is about GDV RM700m. Will come in much later FYE2018/9. Laman View (Cyberjaya), The Vyne (Salak South), Sena, & Kwasa Land will keep them very busy even without new construction contracts on infrastructure. Not sure they are developing another piece in Mukim Setapak and another one more near Tampoi.

31/8/16 Q1 results, Net Current Assets is RM647m vs Market Cap of RM614m (95 sen), looks ok to accumulate a bit. Out of the total Net Current Assets, about RM284m is cash.

Ok, got it. You raise a valid issue. (This issue is a bit tricky as they increases both the current assets side and liabilities side for RM140m for the JV in Cyberjaya, the balance increase of RM98.7m is merely purchase of Semenyih Land by cash). And I notice many other comments are without "economic substance" hence irrelevant. Example, some said Capital City has been substantially recognised, which on contrary, it was recognised less than 12%!!! (RM220m PAT to go)

Even without new contracts, Gadang results will do better than FYE2015, not because the management said so, it is because, it can be estimated with great certainty.

If we turn back time, if, Gadang smoothened its results, i.e. FYE2015, lower it by RM10m, the PAT will be about RM85m, meeting all analysts expectation, and FYE17Q1 add in RM10m, from RM17m to RM27m, do we think Gadang's economic substance has increased? Only speculators and traders are overly concern about quarterly results.

Sadly, you and I know, most comments are lack of substance (other than a few). Most are arguing about "price-action" instead of the "economic substance" on the Company.

Dear kcchongnz,
Relating to your article "a red flag" on increased in property development costs RM484m vs RM200m (FYE2015), it may not be a red flag after all. The increased mainly attributable to increase in Freehold land RM248.2m can be explained below.

If you review the Annual Reports, on Note 16&30, you will realised that the above increased RM284m (484-200) can be substantially explained by the following:

Dr Cr
Purchase of Semenyih Land RM98.7m Cash
JV on Cyberjaya RM141.m Non-trade Payable

Total RM240.2m

Appreciate your comment if it is still a red flag. Thanks.

Warren Buffett said, "In the long run managements stressing accounting appearance over economic substance usually achieve little of either."

By smothering the quarterly results, it does not improve the economic substance of a company. It only shows that management do not spend their time wisely. Do not over emphasise on quarterly or yearly result.

Good, volume back to normal. Less "investors" + "non-investors" in this forum. Time to accumulate a bit.

Not sure this is good news, according to my fund manager, for Capital City, there are about RM285m PBT not recognised yet. Perhaps, this is why the management is confident that the Company can exceed FYE16's results.

Some viaducts are for bumiputra-exclusive only such as MTD-ACPI. V207 is under evaluation. Tender closed on 12 Oct 2016. Pls visit mtmrt.com.my

MTDC will undertake and complete Package V208, which comprises the construction and completion of viaduct guideway as well as other associated works, from Taman Pinggiran Putra to Persiaran Alpinia. Source:The Sundaily.

This is not the package Gadang tender. If I remember correctly, their is V207, not awarded yet by MRT2.

Myanmar 920 towers.

1. Accumulate when low volume. Project IRR is above 16%. OCK own 70% & with good chance of tenancy growth & >10 years leaseback period.

2. EPF buy Ekovest's toll road & was guaranteed only IRR of 10% for 10 years and only for 40%, cannot even control the cash flow or dividend. [There are pros and cons of holding in associate level.]

3. Business model is not comparable although both has high EBITDA.

4. IRR of 16% or more vs 10%.

Great bargain for prospective investors. Will be a wasted opportunity if not capitalised. Accumulate gradually below 23 sen.

Great opportunity, esp, the warrants, keep in the safe till Nov 2020.

One of XLSA favourite. Lately, CredoX favourite. Last week, FS watch list. UOX also think it has potential. Below 24 sen, great upside. One of my favourite, not because of XLSA, CredoX, FS or UOX favourite, because upside is >100% (the warrants).

Over reaction on 7-8 November. There is no new negative news. Great upside.

Overreaction. Good for LT prospective buyers and ESOS holders. Should be happy for the employees.

@newbie92, please don't treat this as an advice.

You must know your own strategy. I can only say about the fundamental, from my own calculation (disregard new contracts), Gadang can achieve higher than the FYE16. My personal target is above RM3.50. Call me "bro" will do. "sifu" is those who have "proven" and "verifiable" record. Judgement call must be independent, after considering upside, downside and horizon of holding.

This phenomena of many "investor gurus" reminded me of the "property gurus", an indication of properties speculations (easy money from bank). I must said, I do not know the current "stock margin" given out, if the trend is very high, then, one have to be cautious, remember in China? (Will try to find out this data, if available, or anyone know this information).

Based on the readings on the comments made in i3, most are unable to make "independent decision", i.e. they have no choice but to follow this guru or that guru or unable to do "adequate homework. Of course, there is also stockist/syndicates at play. Average volume for past few months is about 1-2m, today (11m, half day) and the other day (28m).

Some are also making "careless" remarks. But, if we look at the situation rationally, the current situation (volume > 10m) is really great for "prospective buyers" and "ESOS participants" (employee is smiling). They are smiling because, they can buy at about 19% discount from the peak price, and make more money when they grow the company. Otherwise, the ESOS is useless for them if the Company do not manage to grow at a reasonable rate.

As for the amount given for the proposed ESOS, it is also quite high, in percentage (>10%), but I believe it is also guided by SC or Bursa guidelines (within the law). Imagine, if the company is RM610m (@ RM2.75), 10% is RM61m. How many employee have such amount other than the MD (even MD is not paid more than RM2m a year). So how are they going to pick up the ESOS, even though it is selling at a discount of 10% to them?

Last but not least, for information only, at RM2.75 less net cash of 32sen and dividend 7 sen, the company you are paying is RM2.36 or RM610m. Average profit next 3 years about RM100m. Looks ok. Will be rerated once they secured another project of >RM500m.
07/11/2016 13:39

Based on the readings on the comments made in i3, most are unable to make "independent decision", i.e. they have no choice but to follow this guru or that guru or unable to do "adequate homework. Of course, there is also stockist/syndicates at play. Average volume for past few months is about 1-2m, today (11m, half day) and the other day (28m).

Some are also making "careless" remarks. But, if we look at the situation rationally, the current situation (volume > 10m) is really great for "prospective buyers" and "ESOS participants" (employee is smiling). They are smiling because, they can buy at about 19% discount from the peak price, and make more money when they grow the company. Otherwise, the ESOS is useless for them if the Company do not manage to grow at a reasonable rate.

As for the amount given for the proposed ESOS, it is also quite high, in percentage (>10%), but I believe it is also guided by SC or Bursa guidelines (within the law). Imagine, if the company is RM610m (@ RM2.75), 10% is RM61m. How many employee have such amount other than the MD (even MD is not paid more than RM2m a year). So how are they going to pick up the ESOS, even though it is selling at a discount of 10% to them?

Last but not least, for information only, at RM2.75 less net cash of 32sen and dividend 7 sen, the company you are paying is RM2.36 or RM610m. Average profit next 3 years about RM100m. Looks ok. Will be rerated once they secured another project of >RM500m.

Whoops, RU deleted his comment on the YouTube clips, not sure why. Anyway, based on the consensus, profit ranges for next 3 FYE is about RM85m-RM106m. Even average at RM95m, analyst gave a TP3.59 to 3.70. Use it as reference. The people who gets the ESOS is happy to see the price is down. I am happy for them. Happy employees, hopefully can make more money for the Group.

@newbie92, I just came up to clarify my blog info is inaccurate relating to the youtube. The clip is about GKent (ex-bonus price etc). What FS or KYY said, I do listen, and double checked my original basis (as stated in the blog). I believe, Gadang has not reached "fully valued" yet, imho. I will not, more so, I cannot explain the sell down this morning, but I was told, the first 30 minutes of the trading day is for "traders".

So, newbie92, you must know your horizon period, for a start, then, evaluate rationally based on facts and figures whether the company (structure) or biz model is negatively effected (the company) not what other investors said. Then, recalculated your evaluation and confirm what is the estimated "fully valued" of this shares. Then make a FIRM INDEPENDENT DECISION. A lot of people normally is 50;50, so you must know your own strategy.

Your strategy may be different if you hold 5m shares (bought at RM1.00) vs 5,000 shares (bought at RM2.50). If the 5 million shares represent your entire network, I would sell say 1m or 2m if it has gained 200% or more. So, the remaining shares, i.e. 3 m shares is FREE. Then, my margin of safety is 100%. Why not? I think it is rationale and conservative.

@RU make a comment in my blog lately. He/She heard the youtube clip correctly. Actually, the entire clip was referring to GKent NOT Gadang.

If we listen carefully, at the initial part of the clip, Fong Siling ended his statement on Gadang, and immediately talk about GKent as an example. It make sense after listening to it carefully as he was talking about the ex-price of the share is about RM3.50, presently traded about RM2.70 to RM2.80. He also emphasise he is not asking the audience to buy because it is fully valued.

This is just a clarification. However, there are some readers commented that they did heard Fong Siling said that he sold Gadang shares at RM3.00.

Frankly, all this news to me is irrelevant as I have intention to hold Gadang 2-3 years down the road. I am unlike some investors/speculators who only look at current quarter or believe that the coming year profit cannot outperform previous FYE. My investment is longer. And I am not competing with anyone for MO#1 in investing. I always believe, a good investor must be able to make INDEPENDENT investing decision. Others advice can always be used as reference, and do your own INDEPENDENT research (It is not easy, trust me, you have to talk to the CFO, IR, people in those industry, even sometime verify the JV partners, the capability of JV partners, collectability of debts, all involved judgement, not just hearsay)

Happy investing for investors, and happy trading for traders.

RU, when listening again, u r right. At the beginning, he talk about Gkent after saying Gadang. The entire clip is about GKent, fully valued, worth about RM3.50ex-bonus. (Perhaps those who went for the talk heard him said he had sold Gadang at RM3.00. JUST to clarify. Tx RU

FM, your heard it right. He said he bought at RM1.60 and he is still holding. "Wor hai sze na chor"
For me, it's a non event. Your decision should be independent of it. If your evaluation leads you to conclude that it is fully valued, then don't buy. Don't lose sleep on it. If you know another counter has better return than Gadang, quickly swap it. That is what independence is all about.

@aidwiz, tx.
investors and speculators looks at the Company from different perspective (due to different horizon and risk).
1. As I am looking a few years down the road, I look at what they have invested and roughly when are they bearing fruits. Beauty is in the eye of beholder.
2. I looked at the potential in RM120m invested in utility/plantation (more in the future), RM100m invested in Semenyih land, and also the JV with Kwasa Land, more recognition of Capital City (>80% more to go),
3. Multiple proposals in theory is a non event, it always depends on the sentiment of the day. But the free warrants is an attraction, normally positive.
4. I believe at RM2.90, Gadang has not reach its "full value" yet. On the basis of what they invested (RM120m in utility, RM100m in Semenyih land, JV for Cyberjaya and JV for Capital City (only about 20% or less taken up), and possibly more contracts to come. I based on roughly what these "projects" can earn in the future. So my horizon may be different from many others.

I have watch YouTube (about 53 seconds). He said, using Gadang as an example, he bought it previously because the orderbook contract is high. He said, he is not asking anyone to buy because at recent price, it is fully valued. He didn't said he had sold all the shares. That is my understanding. Please take a look at the YouTube.
https://www.youtube.com/watch?v=B8O2oZc8BVU

Thanks for sharing. On the issue of Kok Onn selling 5.5m shares prior to the lower quarterly result, some may think it is unethical. However, we must look at the past few years trend as well and ask, why did he sell around 25sen in 2010? He also bought and sold during 2010 to 2016, some are bought at RM2.10, some are sold at RM1.77 earlier. From a bigger picture perspective (his indirect holdings is maintained and increased over the years), can you say he is unethical? Why didn't he sell it at RM3.30 instead of 25 sen? Did he know something more? Yes, of course, he knew more than the outside investors, if he knew 6 years down the road from 2010 that the share price will go up from 25 sen to 290 sen, I would say he is not very smart isn't it. Let's say, another 6 years down the road, he did his utmost best for the company, and the share price did goes up say to RM10.00, do we think what he did for selling 5.5m shares unethical? I am looking at the issue, not the person. Do you think he is more ethical if he sell after the qtr? Debatable isn't it?

Will try to grab more at 23 sen. Potential will be great as the towers in Myanmar are sub-tenant out to other operators, therefore increasing its tenancy ratio. (accumulate - within your plan)

Gadang cash per share based on the 1Q17 is 32 sen per share. Net Current Assets is RM300m, or RM1.16 per share. Say, at RM2.93, with dividend of 7 sen, less net cash per share, actual price is RM2.54 per share or market cap of RM656 million. With earnings average of next 3 years, RM85 to 100m, PE is within 6.6x to 7.7x. Not very demanding.

thsw, I updated on the same blog. SOS Is Gadang still a gem at RM3.20? Part 4

Updated my Gadang Part 4, for non-panic participants only.

@pissanggoreng,

1)thanks for the clarification (I only extracted the substance of the issue to highlight an investor who has genuinely done his homework instead of making irresponsible comments)

2)I am not saying the price IS going to move up or down in short term, but I do know, under the JV, how the share of profit work

3)We can take a horse to the water, but we cannot force the horse to drink.

4) this is not a buy, sell or hold call. This is an important fact investors should know before investing.



EXTRACTS FROM PISSANGGORENG

1. He did not read the agreement of the JV of Gadang and Hatten for the development of Capital city.
you may view the agreement through the following link:

http://www.bursamalaysia.com/market/listed-companies/company-announcements/4381697

if MR ABC had read the agreement carefully with an unbiased heart (hati terbuka), then he would have convinced that whether capital city a "white elephant" or "not a white elephant" , Gadang is guaranteed of the profit sharing of some RM334,000,000.00 or a steady income of about RM55M - 60M per year, every year for a period of 5 five and half year starting from 2015 untill 2021

Gadang did not have to pay a single sen for the development , just a piece of land bought a price of RM 30,500,000.00. all the development cost is borne by Hatten

2. MR ABC did not check the financial status of Hatten international pte limited company. if he had done that,then he would have convinced this capital city project for Hatten is just a "sap-sap-sui" case.

@zoomboom, wow, you got on the train very early (3 yrs). I just started after the baby (warrants) was born in Dec 2015.

So, its only 10 months for me. A lot of things have happened between Dec 2015 and now:

Myanmar deal finally signed,RI, PP, Bank Loan Approved for Myanmar, PE partner (CapitalAsia Telco) with OCK for Vietnam Deal, about 300 units delivered in Myanmar, coming EGM to approve Vietnam deal.

Company financial position is definitely strengthened significantly, however, share price only up about 12 sen from 70 sen. Its warrants will be a great leverage for the growth (another 4 years 2 months to go). By Aug next year, I hope the warrants can gain at least 50%.

Property GDV of RM5.4m issue

1. Some are JV with land owners, some are share of profits of GDV by providing land, some are conventional development of own land. JV (Cyber + Kwasa) and Share of Profits (Capital 21) lowered the risk profile of a conventional developer, who have to bear the holding cost of land.

2. Calculation of a RNAV and discount on RNAV and discounting rate is very very subjective in the market. Hence, sometimes it can be overly conservative (like the report on 18 Oct 2016). Hence, great upside is there (esp Capital 21).

Construction

1. GKent got their VO approved from RM1.1b to RM1.4b for its first rail transit viaduct work.

2. Some of the other contractors also may get their VO approved. Upside is there.

3. Gadang successfully revived the hospital project in Shah Alam and in negotiations to get more.

Gadang will be busy easily for next 2-3 years, not only for construction, but also its property development. Similarly in earlier years, their orderbook is on a growing trend, although management is caution of type of contract to be taken.

@zoomboom, Brahmal+small cap are positive news. I am continuing to accumulate the warrant below 24sen (today). Am not sure what is their criterions for the small cap selection, but, I like the fact that OCK business model is great and also <RM1.0bil market cap.

Good biz model stocks are getting harder to find (like buying a good toll road). Time will tell.

One day, when more foreign research houses realise its fantastic biz model, and with one or two more acquisitions, the price will catch up with the fair value. (RM1.40 imho). When we are too early, sometime they said you are "dreaming".

I have a friend who is migrating to Canada, so, in March 2016, I gave that person a sincere farewell gifts, one is OCK (70sen) and the other is Gadang (RM2.10). I hope we remain friends few years down the road.

The result of Myanmar and Vientam deals can only be seen by August 2017 announcement (1H2017). If FYE 16 is positive, and 1Q17 is still growing, then, likely it will be recognised by May/June 2017.

Information for personal use only:

[FYE (PE)] [TTM (PE)-24/10/16] [Inc (%, since 26/8/16)]

Gadang 5.1x 8.1x 22%
Gkent 9.5x 15.6x 29%
Ekovest 8.2x 11.9x 27%
Econpile 10.7x 15.1x 23%

For reference only. Capital 21 - valued by analyst at only RM68m. In reality, it is close to RM148m. At the moment, not many care about the "value"-

Just like when furniture exports run in for about 30 months (1Q2013 to 3Q2015) while construction move upward for less than 15 months.

After yesterday run up on the construction sector, Ekovest, Econpile and GKent TTM PE is 12-15X, except for Gadang, which is still at PE 8.1X. Just for reference.

Gadang net profit FYE16 exceeded analysts' consensus by 14%. They are expected to achieve RM82m, but instead, attained RM94m. It would be wise to keep some for buffer, likely they have done so. So, it is likelihood FYE17 will do better than FYE16 (imho).

@TRV, what is the EPV now, after taking into account the latest earning for 31/5/2016. The figure you used is 31/5/2015? What about the other 2 methods, with the latest FYE16, are you able to get the Fair Value?

"The evil that is in the world almost always comes of ignorance, and good intentions may do as much harm as malevolence if they lack understanding" Albert Camus.

Malaysia is already full of "leaders" who run the country and who made irresponsible statements almost every day.

@Ricky, I am one of the many thousands like you, who happen to have assess to a fund manager. So, I have a little unfair advantage to other investors who do not have. Similarly, the unfair advantage sometime could be a curse at the same time. I part time fund manager actually, without the "d".

A math question for my readers, how much will you get if you invest RM100k and compound it 2x, then 3x, then 4x and lastly 5x? Those who can do that, very highly likely, will not be in this forum. He or she will likely running funds like Brahmal or become top 30 largest shareholders in many good PLC like Mr Fong Siling.

after the meeting.......... management is conservative........positive (although caution)........... likely results is better than expected. Should the MRT2 contract comes sooner, rerating on upside is likely. (This may be the Part 4). At RM3.20, I believe touching RM4 is possible once MRT2 is secured.

@stocktrader3 pls read RHB's report. They have estimated the Kwasa Land deal. I think it is very very conservative.

Not many construction and developer has net cash. For Gadang's case is net cash position of RM94.4m FYE16. The top 10 listed property companies (matured) has a gearing of about 0.5X (Just for reference).

Error in earlier comment on shareholdings. Will relook and update later.

Please read the latest RHB report dated 18 October 2016 for reference. From the tone of the meeting with management, they sounded more positive on the earnings visibility and also undemanding valuation.

TP of RM3.50 (should we take out the DCF of Capital 21, it is only about 22 sen). Impact is minimal. Of course, we cannot simply just take out the entire DCF just like that, more detail work need to be done. This is worst case.

Sorry, it was between 1997 to 2001, not 1999. Average IJM earnings p.a. is RM96m with average shareholders fund of RM1.7b.

Gadang is making RM94m with SF of RM529m. Gadang average ROE is 13.7% (2012-2016) vs IJM Corp is about 8.3% (1997-2001).

This may not be the best comparison, but is a good reference. They were both in construction and property sectors.

Between 1999 and 2001, IJM Corp trading at PE of 7-32x. Average earnings for that 5 years was about RM96m.

Gadang barely hit PE of 10x. With Kwasa Land & MRT2 (likely), I believe Gadang average profit next 3 years can reach RM110m. So, giving a mid PE of 10x, I think achieving RM1.1billion is not even consider high.

If Kwasa Land can get RM165m without assuming the responsibility of a developer or contractor, how much do you think Gadang will get?