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Saturday, January 4, 2014

Gadang Holdings Bhd (Star)

ONCE a pure construction player, this company is fast transforming itself into a diversified group.

Its property segment, utility and plantation divisions will eventually provide solid support to the group’s total income base where currently construction is still the main driver.

Under its construction division, it has an outstanding order book of about RM1.2bil which according to estimates provides earnings visibility of at least three years for the group.

It will tender for up to RM6bil worth of jobs and near-term replenishment could come from the second phase of Petronas’ Rapid project in Pengerang worth some RM300mil, according to a note by JF Apex Securities. The project which involves the construction of a cogeneration plan is expected to be awarded early this year.

Gadang was awarded the job for the first phase of the project.

Under its property segment, some RM425mil worth of launches are earmarked for the current financial year ending May 31.

Gadang has also joined the PR1MA fray by being a partner to government-owned Cyberview Sdn Bhd. The first phase of their affordable homes project in Cyberjaya is expected to be launched in the middle of this year with a gross development value of RM150mil.

Pre-tax profit from Gadang’s property segment increased four-fold to RM4.3mil for the latest quarter from RM1mil a year earlier.

On its utility division, the company is said to be in negotiations to beef up its Indonesia water treatment capacity business where it has controlling stakes in five Indonesian water supply companies.

Its water supply division currently contributes about 10% to the group’s pre-tax profit.

It is also moving into the mini-hydro power generation business where in October it said it would pay RM3.06mil for an 80% stake in PT Hidronusa Rawan Energi, which is currently pursuing a 4MW hydropower project in Indonesia.

This is the company’s second purchase following the acquisition of a 60% stake in a 9MW mini-hydropower project in May for RM3mil.

Contribution from the mini-hydro power generation business, however, is not expected to be immediate as it will take at least two years for the full infrastructure to be put into place.

Gadang also hopes to ride on a potential recovery of crude palm oil prices which headed south last year

JF Apex notes that early harvesting had commenced in early 2012 and the group projected RM20mil of yearly revenue from this business upon maturity, which is about four to five years from now.

For its latest quarter to Aug 31, Gadang’s net profit soared 184% to RM7.1mil on revenue of RM113.5mil compared with a net profit of RM2.5mil on revenue of RM47.3mil previously.

The stock last traded at RM1.02 which is about nine times price earnings ratio to the group’s FY2014 forecast earnings.

JF Apex and UOBKayHian Research have a target price of RM1.43 and RM1.50 respectively on Gadang, suggesting an upside of about 44% on average from the current price.


- Sizeable and growing construction order book which give clear earnings visibility.

- Analysts project earnings growth of 32% compound annual growth rate from FY14-FY16.

- Diversification into property, utility and plantation segments.

- In net cash position, possibly growing dividends for shareholders.


- Slowdown in domestic consumption could affect demand for property.

- Failure to secure the anticipated contracts.

– By Yvonne Tan

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