Quick take: Gadang shares slide after 36% profit fall

KUALA LUMPUR: Shares in Gadang Holdings Bhd have fallen after it reported a 36% in annual profits in its second quarter ended Nov 30, 2019.

The counter fell 1.46%, or one sen to 67.5 sen with 1.3 million shares. Gadang-WB shed 4.76%, or one sen to 20 sen.

Gadang posted a 36.3% fall in net profit in its second quarter to RM10.85mil from RM17.03mil in the year-ago quarter, mainly due to fair value loss on quoted investments that amounted to


Earnings in its construction division contracted for the quarter ended Nov 30, 2019, with profit before tax (PBT) dropping 26% to RM9.3mil from RM12.49mil, while utility division’s PBT fell 48% to RM1.48mil from RM2.83mil.

The decrease in 2QFY2020 profit came despite a 17.3% rise in revenue to RM197.72mil, from RM168.52mil.

JF Apex Research said Gadang’s first half to Nov 20, 2019 (1HFY20) was within its expectations.

“The group recorded RM345.3mil revenue which increased 16% year-on-year. However, EBIT slumped to RM37.9mil, -17% mainly because of higher cost incurred. As a result, 1H net profit fell to RM25.7mil, which tumbled 23%.

“The Group’s 6MFY20 was within our/consensus expectation, matching 47.7%/44.8% of full year net earnings forecast. The moderate performance was mainly attributable to higher cost from construction hiccups,” JF Apex said.

The research house said Gadang’s outstanding order book as of 1QFY20 stood at RM1bil which was below its full load of RM2bil capacity no thanks to sluggish local construction sector.

“We understand that the group’s tender book currently stands at RM800mil to RM1bil including projects such as ECRL in which the Group has been shortlisted under pre-qualification stage, LSSPV3, Hospital Pasir Gudang, TRX double-storey plaza, Maritime Complex in Sarawak, an earthwork and infrastructure job in Kedah and Sarawak portion of Pan Borneo Highway,” it said, adding that outcomes of the tenders are expected in 1Q/2QCY20.

The research house has marginally tweak up its FY20F net earnings forecasts by 0.9% to RM54.3mil after accounting for slightly better construction and property divisions in FY20F and potential variation order from RAPID project which is likely to be booked in 2HFY20F and better earnings for FY21F on capital city proceeds.

“We have also increased earnings forecast of FY21F from RM58.1mil to RM74.1mil on the back of potential extra contracts will be secured and higher property sales in 2H2020,” it said.

“Upgrade to hold from sell with a higher target price of 67 sen from 63 sen previously following our slight earnings lift and higher PE multiple applied,” it added

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