Gadang plans to give regular dividend

PETALING JAYA: Cash-rich Gadang Holdings Bhd, which has just announced its second acquisition of another small hydropower project in Indonesia, is planning to establish a regular dividend policy as it builds up its recurring income assets.

“If we continue to have good profits and stable cashflow, we will look into paying regular dividends and establishing a dividend policy,” said managing director and chief executive officer Tan Sri Kok Onn.

Gadang currently derives some 70% of its revenue from its mainstay, which is construction and engineering works. The rest comes from utility, property and soon, plantations.

Gadang on Monday said it would pay RM3.06mil for an 80% stake in PT Hidronusa Rawan Energi, which is currently pursuing a 4 MW hydropower project in Jawa Barat, Indonesia.

This is the company’s second purchase following the acquisition of a 60% stake in a 9 MW mini hydropower project in Sumatera Barat in May for RM3mil. The acquisition marked the group’s foray into the power business.

“Construction is no easy business, that’s why we are building up our recurring-income streams, ” Kok said over a lunch meeting.

He added that the group was projecting an internal rate of return of at least 15% for its hydropower projects over a tenure of 30 years.

Under the utility division, Gadang is also involved in the Indonesian water supply sector where its wholly owned subsidiary Asian Utilities Pte Ltd has acquired controlling stakes in five Indonesian water supply companies.

This has proven fruitful for it with the water supply division currently contributing about 10% to the group’s pre-tax profit.

In its property segment, the company has unbilled sales of about RM170mil and an outstanding gross development value of about RM1bil.

For its current financial year ending May 31, 2014, it has lined up some RM425mil worth of property project launches in various locations such as Salak South, Kuala Lumpur, and Tampoi, Johor Baru.

Its plantation division, which is relatively new, is expected to be another strategic business segment for reliable recurrent income stream.

Growth in the immediate term, however, will continue to be underpinned by the group’s RM1.3bil construction order book.

“Gadang has the potential to re-rate upwards, driven by strong earnings growth visibility and lucrative concessions that provide stable cashflow,” UOBKayHian said in its Oct 22 initiation report on the company.

It initiated a “buy” call on the stock with a target price of RM1.50.

In its report, UOB said Gadang was currently tendering for about RM6bil worth of projects and targetted to replenish its order book by about RM500mil in the current financial year. Its current jobs include the MRT Line 1 as well as the earthwork package works for Petronas’ RAPID project in Pengerang.

“We believe Gadang would be able to clinch more construction jobs, given its good track record,” said UOBKayHian.

Its completed projects include Kota Kemuning-Shah Alam Expressway, earthworks at Sungai Buloh Depot of MRT 1 and earthworks for KLIA2 in Sepang.

Gadang declared a first and final dividend of 3 sen per share for the last financial year, which was 50% higher than the previous year.

For its first quarter ended Aug 31, it made a net profit of RM7.1mil or 3.63 sen per share on revenue of RM113.5mil compared with a net profit of RM2.5mil or 1.28 sen per share on revenue of RM47.3mil.

At the close, Gadang shares finished 1 sen lower to 96 sen.