Sunday, February 16, 2014

Gadang-Strong momentum in construction division (JF)

Gadang Holdings Berhad
Share Price RM1.15
Target Price RM1.43
Strong momentum in construction division

Result
Gadang Holdings registered RM141m and RM8.3m of revenue and net profit respectively in its 2QFY2014. The net earnings was 16.9% higher qoq but 32% lower yoy as the Group had booked in RM11.4m of disposal gain in the 2QFY2013 arising from the sale of a land in Penang.

Anticipating stronger 2HFY2014 - The result lifted 6MFY2014 net profit to RM15.4m, up 4.1% yoy. However, net profit would have grown significantly 353% if we strip off the disposal gain of RM11.4m recorded in last year. The results is deem within our expectation as we expect higher earnings to kick in by the 2HFY2014 to match our full year estimate, as construction progresses in faster pace.


Comment
Projects in higher gear – 6MFY2014 PBT contribution from the construction sector surged 163% to RM12.1m from RM4.6m in 6MFY2013 due to the higher recognition of progress of its projects, led by the RM863.4m V2 Package of MRT with the other two projects being the RM410.9m Shah Alam Hospital and RM322.8m RAPID Phase 1. The projects in hand are expected to drive the construction earnings in the near term while moving forward the Group is targeting for new projects worth more than RM6b in total.

Triumph in Shah Alam – The property division chipped in RM8.8m of PBT as of 6MFY2014, mainly driven by the Jentayu in Johor. The figures were 46.7% lower yoy as the division was aided by disposal gain in the previous year. Meanwhile, the Group is aiming for new property sales of RM300m in FY2014, spearheaded by the Phase 2 of Jentayu (GDV:RM369m), and Phase 2 of Residensi Vyne (GDV:RM213m) in Sungai Besi, which received overwhelming response in the Phase 1.

More gravity on utility division – Due to the strengthening of Ringgit against Rupiah, the revenue contribution from utility division in Indonesia fell marginally by 3.7% to RM8.1m. However, the PBT rose to RM3.4m in 6MFY2014 from RM1.7m a year ago as the Group made a profit of RM0.5m from the disposal of investment in its subsidiaries while the 6MFY2013 figures were dragged down by higher operating cost. Moving forward, the Group is looking to increase its water treatment capacity by 42% while also plans to diversify into the mini hydro power generation in Indonesia.

Earnings Outlook/Revision
We make no changes to our earnings forecast as we expect 2HFY2014 to be even stronger, backed by the construction division.

Valuation/Recommendation
Maintain BUY with unchanged target price of RM1.43. We continue to peg our TP with 9.1x PER to the Group’s FY2014F fully diluted EPS, which is in line with its +1SD above its 3-year mean PER and the valuation we peg to the other small-mid cap construction companies under our coverage.

The share price has surged 21.7% since our initiation coverage report back in November 2013. Nevertheless, we are still maintaining our positive stance on the counter with our TP still offering an upside of 24.3% from the last closing price.


Source/Extract/Excerpts/来源/转贴/摘录: JF APEX
Publish date: 24/01/14

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