PETALING JAYA: Despite the downside risks, Gadang Holdings Bhd’s recent contract win of RM100.34mil for subcontract works is positive for the company and an earnings booster.
The subcontract works for the Central Spine Road Package 2 was secured by its wholly-owned subsidiary, Gadang Engineering (M) Sdn Bhd from Binary Vista Sdn Bhd.
The company said the subcontract is expected to contribute positively to the earnings and net assets of Gadang for the financial year ending May 31, 2022 and onwards.
The company, in a stock exchange filing, said risks factors affecting the subcontract comprise mainly the normal operational and execution risks which the group would take appropriate measures to address.
TA Securities is positive on the news as Gadang has finally ended its contract drought as this is the first job win by the group in financial year (FY) 2022.
The previous major job win for the group was the RM81.2mil work package for sections 5 and 6 of the East Coast Rail Link, which was secured about one and a half years ago.
“Assuming a gross margin of 10%, the project is estimated to generate RM4mil of net earnings throughout the construction period. With this new job win, Gadang’s outstanding order book is estimated at RM525mil, translating into 1.4 times FY’21 construction revenue.
We are maintaining our FY’22 to FY’24 earnings forecasts as the job win is within our FY’22 order book replenishment assumption of RM500mil,” it said in a report.
Gadang posted a RM3.7mil net profit for the fourth quarter ended May 31, 2021 (Q4’FY21) compared with a loss of RM259,000 a year ago, while revenue was 32% higher to RM152.3mil.
The group is involved in civil engineering and construction, property development, water supply, mechanical and electrical engineering services.
The company said the improved Q4’FY21 earnings were due to its construction and utilities divisions, while the higher revenue was mainly due to the property division’s better sales for some ongoing projects.
For FY’21, the group’s net profit dropped 71% year-on-year to RM10.25mil from RM35.5mil in FY’20, while revenue was 15% lower to RM574.75mil mainly due to lower contribution by both the construction and property divisions.