Gadang Holdings Bhd, involved primarily in construction and property, has tendered for over RM10bil worth of jobs, mainly for Petronas’ Refinery and Petrochemical Integrated Development (Rapid), the Klang Valley MRT and the proposed Damansara-Shah Alam (DASH) and Sungai Besi-Ulu Kelang (SUKE) elevated expressway projects.
Managing director and chief executive officer Tan Sri Kok Onn (pic) says the company, which also has utility and plantation businesses prefers to stick to jobs that it is already familiar with, referring to its current construction jobs with both Rapid and MRT.
“We think the results of these tenders should come out within the next three to four months,” he tells StarBizWeek, adding that the company hopes to get 20% of the RM10bil jobs that it had bid for.
Gadang currently has a balance of construction jobs worth RM800mil which are ongoing, Kok adds. He does not elaborate on margins but according to Matthew Tee, president of Master Builders Association Malaysia, margins which currently stand at single digits, will be stretched further even as the price of steel, one of the main components of the construction industry has increased by more than 30% since the beginning of the year.
Kok says he believes that the construction industry on the whole will be kept busy at least for the next couple of years, with job flows coming in. Earlier this month, Works Minister Datuk Seri Fadillah Yusof was quoted by Bernama as saying that the construction sector was expected to grow between eight and 10% this year from 8.2% last year, driven mostly by government-related projects. “After these next couple of years, we are not sure but we think it will still be okay as the Government will always need to build infrastructure,” Kok reasons.
Among the new projects that are expected to kick off soon include new highway, the 2,239 km Pan Borneo Highway project which will link the two East Malaysian states of Sabah and Sarawak for some RM27bil.
Depending on the economic climate, the Government may or may not slash its spending on new Government projects.
Notably, Gadang’s construction jobs come mostly from the Government.
This presumably has worked in its favour as payment collection for work done for the Government should be easier to obtain compared to getting payments from private firms which may not have as huge coffers.
Gadang as a stock, first shot unto investors’ radar in 2014 where within the first six months of the year it had doubled to RM2.02 from RM1.01, after which it traded mostly range-bound before bouncing back in the third quarter of last year with interest gaining traction more recently.
At last look, the stock was traded at RM2.14, giving it a market capitalisation of slightly over RM500mil. It has gained 9% over the past one week. In its latest note to clients, research house JF Apex which tracks Gadang notes that it continues to “favour the group for its well-diversified business model as well as its ability to achieve growth across all divisions.”
“Looking forward, we are positive on Gadang’s earnings given the recent order book replenishment of RM560mil from Rapid projects and continuous sales activities generated by the flagship projects of its property segment.”
The research house has a target price of RM2.86 on the company’s stock.
For its second quarter ended Nov 30, 2015, Gadang made a net profit of RM17.7mil compared with a net profit of RM8.5mil for the same period, a year earlier.
It also has retained earnings totalling some RM195.8mil which gives it some form of leverage to pay out dividends and conduct other corporate exercises.
Notably, Gadang’s cash pile, which includes fixed deposits has dipped a little from six months ago, standing at RM205.4mil based on its latest accounts, from RM232.6mil before. While it was in a net cash position in the previous quarter, its latest accounts show that its total bank borrowings stand at RM246mil, which is higher than its current cash hoard.
The company recently announced that it proposed to undertake a private placement of up to 10% of the issued and paid-up share capital of Gadang to unnamed investors at RM1.85 per share.
Sources say the placement would be made to foreign parties.