MALAYSIA

INVESTMENT RESEARCH REPORT

JF APEX SECURITIES BERHAD
(47680-X)

Company Update 15 May 2020

Gadang Holdings Berhad BUY
Sailing through uncharted waters Upgraded

Share Price RM0.40 Results

Target Price RM0.48  Gadang reported a net profit of RM10.1m for its
3QFY20 result as compared to a net profit of
Company Description RM10.7m in its 2QFY20 and RM13.4m for its 3QFY19.
Gadang Holdings Bhd, through its subsidiaries, provides
earthwork, civil engineering and construction projects.  Stronger QoQ earnings. The Group delivered a higher
Gadang also develops and invests in properties and revenue of RM212.1m (+7%) and profit before tax (PBT) of
manufacture ready-mixed concrete. RM16.8m (+11%) thanks to minimal increase of costs of
good sold and lower expenses (+3% & -45% respectively).
We witnessed EBIT up substantially to RM19.9m (+26%)
Stock Data from RM15.8m. In addition, EBIT margin and net profit
Bursa / Bloomberg code 9261 / GADG MK margin hold relatively well as 9.4%/4.80% respectively.
Main / Construction & However, higher tax expenses (+65%) caused the net profit
Board / Sector
Materials
slide to RM10.1m from RM10.7m.
Syariah Compliant status Yes
 Disappointing YoY performance. Revenue increased
Issued shares (m) 728.06
mildly by 3% but the increase in administration expenses
Par Value (RM)
Market cap. (RMm) 294.86 and operating expenses to RM11m/RM5.5m (+37%/44%)
52-week price Range 0.23-0.94 offset the operating profit to RM19.9m (-15%). To make
Beta (against KLCI) 2.12 matter worse, the elevation of finance costs (+75%) as well
3-m Average Daily as widening loss for joint venture (+425%) eroded the
Volume 6.44 bottom line radically to RM10.1m (-25%).
3-m Average Daily
Value^ 2.59  9MFY20 exceeds expectations. The Group recorded
RM557.4m revenue which increased 11% YoY. However,
Share Performance operating profit slumped to RM57.8m, -16% mainly because
1m 3m 12m of higher cost incurred. As a result, 9 months net profit fell
Absolute (%) 28.6 26.6 -50.9 to RM35.7m, which tumbled 24%. We deem the Group’s
Relative (%-pts) 25.1 -31.6 -41.8 9MFY20 result above our/consensus expectations, matching
94%/80% of full year net earnings forecast. However, we
Major Shareholders % anticipate tough quarter ahead as construction will be
Meloria Sdn Bhd 13.61 heavily impacted by stringent SOP rules such as social
Sumber Raswira Sdn Bhd 11.20 distancing and health screening of foreign workers.
EPF 4.69  Encouraging property sector. Property segment
contributed positively during 3QFY20 as the segment
Historical Chart achieved RM60m (+68% YoY) sales and RM14.4m profit
(+183%) to the group’s bottom line on the back of
1.00
favourable sales from Elegan @ Taman Putra Perdana,
Puchong which was launched in August 2019.
0.90

0.80

0.70
Comment
0.60

0.50  Venturing into overseas market. We deem Gadang

0.40
will be facing a very difficult period in the residual year as
order book replenishment is at risk, coupled with invisible
0.30

0.20
policy guidance, and construction downcycle to persist. As
the local market is full of uncertainty, Gadang acquired a
Source: Bloomberg Singapore earthwork company (mainly in piling) to venture
into overseas market in December 2019, which is in line
Research Team with the management’s guidance to look beyond Malaysia.
03-87361118, ext. 754 The move is favourable as Singapore has a few public
construction infrastructure plans such as the Integrated
chhow@jfapex.com.my

Please read carefully the important disclosures at end of this publication

15-May-20 Company Update – Gadang Holdings JF APEX SECURITIES

Waste Management, Changi Airport Terminal 5, Jurong

Region MRT Line and Cross Island MRT Line. We are
confident that Gadang will secure some public construction
projects in Singapore based on its commendable track
records in the past.
 Aligning property launching with market demand.
The unsold units of residential houses for national level
rose dramatically to 57,000 units in 2019, +11.2% rise in
volume and +16.1% in terms of value. The bulk of unsold
units comprised of high-rise units which poses a bumpy
road for property developers. We believe Gadang could
mitigate the supply glut issue by launching some
demanding residential properties, for instance, landed
houses in Puchong, which is strategically located within
Klang Valley. Such project is expected to remain resilient
along the year. Still, the disruptive economic impact of
COVID-19 is yet to be seen till few months down the road
with severe impacts to construction and property sectors
as a result of rising unemployment, mounting household
debt, and unquantifiable “new normal” side effect to our
country. Having said that, Gadang boasts RM887m order
book and RM107.8m unbilled sales which will let the Group
busy for the next 2 years as well as buffer the stagnant
property market.
Earnings Outlook/Revision
 We upgrade our FY20-21F net earnings forecasts by
15.1% and 27% as Gadang has received approval
earlier than May CY2020 to resume construction progress,
contributing positively for its 4QFY2020 coupled with its
impressive 3QFY2020 property sales to offset potential
sluggish in 4QFY2020. However, we expect a slew of
uncertainties emerges with unforeseeable 2HCY2020
outlook such as potential city lockdown for 2nd wave of
COVID-19.
Valuation & Recommendation
 Upgrade to BUY from HOLD with a higher target
price of RM0.48 (from RM0.42) following our
earnings upgrade. Our revised target price is pegged at
unchanged PE multiple of 8x FY21F EPS amid challenging
construction and property outlooks.

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15-May-20 Company Update – Gadang Holdings JF APEX SECURITIES

Figure 1: Quarter Result

FYE 31 May 3QFY20 2QFY20 3QFY19 QoQ YoY 9MFY20 9MFY19 YoY
RM'm RM'm RM'm % % RM'm RM'm %
Revenue 212.1 197.7 205.3 7% 3% 557.4 502.9 11%
-COGS (174.4) (169.2) (171.0) 3% 2% -459.7 -409.3 12%
Gross Profit 37.7 28.5 34.3 32% 10% 97.7 93.6 4%
-Other income 2.0 4.0 2.4 -50% -17% 10.0 11.5 -13%
-Administration expenes (10.9) (6.8) (7.9) 60% 37% -23.7 -19.0 24%
-Depreciation and Amortisation (1.7) (1.4) (1.5) 19% 11% -4.6 -4.5 1%
-Operating expenses (5.5) (5.2) (3.8) 5% 44% -14.7 -12.3 19%
-Other expenses (1.8) (3.3) - -45% NA -7.0 -0.2 3400%
EBIT 19.9 15.8 23.5 26% -15% 57.8 69.1 -16%
-Finance Costs (1.1) (1.1) (0.6) -5% 75% -3.3 -1.6 103%
-Share of JV (2.1) 0.4 (0.4) -625% 425% -1.6 0.3 -633%
Profit before taxation 16.8 15.1 22.5 11% -25% 53.0 67.8 -22%
-Income tax expenses (6.8) (4.1) (8.9) 65% -24% -16.9 -20.7 -19%
PAT 10.0 11.0 13.6 -9% -26% 36.1 47.1 -23%
-Minority Interest 0.1 (0.4) (0.2) -116% -128% 0.3 -0.1 -405%
Net Profit 10.1 10.7 13.4 -6% -25% 35.7 46.8 -24%

Figure 2: Financial Summary

FYE 31 May FY15 FY16 FY17 FY18 FY19 FY20F FY21F

RM'm RM'm RM'm RM'm RM'm RM'm RM'm
Revenue 587.4 675.4 553.9 596.1 699.9 686.9 802.9
EBITDA 105.8 148.4 168.9 165.3 81.8 75.6 85.4
EBIT 87.4 127.1 143.8 133.5 75.9 71.5 78.9
PBT 84.9 124.5 141.6 132.6 71.0 67.0 74.5
PAT 61.0 94.7 100.6 96.9 43.6 43.9 47.0
Net profit 59.8 94.8 100.1 96.9 43.5 43.8 47.0
Margin (%)
EBITDA margin 18.0% 22.0% 30.5% 27.7% 11.7% 11.0% 10.6%
EBIT margin 14.9% 18.8% 26.0% 22.4% 10.8% 10.4% 9.8%
PBT margin 14.9% 18.8% 26.0% 22.4% 10.8% 10.4% 9.8%
PAT margin 10.4% 14.0% 18.2% 16.3% 6.2% 6.4% 5.9%
Net profit margin 10.2% 14.0% 18.1% 16.3% 6.2% 6.4% 5.9%

EPS (sen) 8.2 13.0 13.8 13.3 6.0 6.0 6.5

P/E 11.1 7.0 6.6 6.8 15.2 15.1 14.1
Net gearing Net Cash Net Cash Net Cash 0.8% 19.5% 22.8% 25.5%
ROE 15.4% 17.7% 15.9% 13.7% 5.9% 7.1% 9.1%
DPS (sen) 0.05 0.07 0.03 0.03 0.01 0.01 0.01
Dividend Yield (%) 5.5% 7.7% 3.3% 3.3% 1.3% 1.1% 1.1%
Source: Company, JF Apex

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 15-May-20 Company Update – Gadang Holdings JF APEX SECURITIES

JF APEX SECURITIES BERHAD– CONTACT LIST

JF APEX SECURITIES BHD DEALING TEAM RESEARCH TEAM

Head Office: Head Office: Head Office:

6th Floor, Menara Apex Kong Ming Ming (ext 3237) Lee Chung Cheng (ext 758)
Off Jalan Semenyih Shirley Chang (ext 3211) Lee Cherng Wee (ext 759)
Bukit Mewah Norisam Bojo (ext 3233) Nursuhaiza Hashim (ext 752)
43000 Kajang How Chi Hoong (ext 754)
Selangor Darul Ehsan Institutional Dealing Team:
Malaysia Zairul Azman (ext 746)
Ahmad Mansor (ext 744)
General Line: (603) 8736 1118 Nur Nadia (ext 741)
Facsimile: (603) 8737 4532
PJ Office:
PJ Office: Mervyn Wong (ext 363)
15th Floor, Menara Choy Fook On Azfar Bin Abdul Aziz (Ext 822)
No. 1B, Jalan Yong Shook Lin Joanne Tan Hui Bin (Ext 111)
46050 Petaling Jaya
Selangor Darul Ehsan
Malaysia

General Line: (603) 7620 1118

Facsimile: (603) 7620 6388

JF APEX SECURITIES - RESEARCH RECOMMENDATIONFRAMEWORK

STOCK RECOMMENDATIONS
BUY : The stock’s total returns* are expected to exceed 10% within the next 12 months.
HOLD : The stock’s total returns* are expected to be within +10% to – 10% within the next 12 months.
SELL : The stock’s total returns* are expected to be below -10% within the next 12 months.
TRADING BUY : The stock’s total returns* are expected to exceed 10% within the next 3 months.
TRADING SELL : The stock’s total returns* are expected to be below -10% within the next 3 months.
SECTOR RECOMMENDATIONS
OVERWEIGHT : The industry as defined by the analyst is expected to exceed 10% within the next 12 months.
MARKETWEIGHT : The industry as defined by the analyst is expected to be within +10% to – 10% within the next 12 months.
UNDERWEIGHT : The industry as defined by the analyst, is expected to be below -10% within the next 12 months.
*capital gain + dividend yield

JF APEX SECURITIES BERHAD – DISCLAIMER

Disclaimer: The report is for internal and private circulation only and shall not be reproduced either in part or otherwise without the prior written
consent of JF Apex Securities Berhad. The opinions and information contained herein are based on available data believed to be reliable. It is
not to be construed as an offer, invitation or solicitation to buy or sell the securities covered by this report.

Opinions, estimates and projections in this report constitute the current judgment of the author. They do not necessarily reflect the opinion of JF
Apex Securities Berhad and are subject to change without notice. JF Apex Securities Berhad has no obligation to update, modify or amend this
report or to otherwise notify a reader thereof in the event that any matter stated herein, or any opinion, projection, forecast or estimate set forth
herein, changes or subsequently becomes inaccurate.

JF Apex Securities Berhad does not warrant the accuracy of anything stated herein in any manner whatsoever and no reliance upon such
statement by anyone shall give rise to any claim whatsoever against JF Apex Securities Berhad. JF Apex Securities Berhad may from time to
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JF Apex Securities Berhad(47680-X)
(A Participating Organisation of Bursa Malaysia Securities Berhad)