This article first appeared in The Edge Financial Daily on April 18, 2019

Gadang Holdings Bhd
(April 17, 68.5 sen)
Downgrade from buy to hold with an unchanged target price (TP) of 68 sen. Gadang Holdings announced that its wholly-owned subsidiary Gadang Engineering (M) Sdn Bhd has received a letter of award to build a tiered bridge connecting the northern and southern sites of the Tun Razak Exchange (TRX) from TRX City Sdn Bhd.

The RM38.52 million project consists of a passage for vehicles, walkways for pedestrians, and a closed passage for utility installations on the ground floor.

The job is expected to start on July 1, 2019 and targeted to complete in the third quarter of calendar year 2020 (3QCY20). This is the second job secured from TRX City Sdn Bhd. To recap, the group had earlier secured an RM86 million job to construct and complete public realm works (phase 1) at TRX on Aug 20, 2018.

The group’s outstanding construction order book stands at RM1.47 billion. Outstanding jobs will sustain group revenue visibility close to 2.4 years or 2.4 times of financial year 2018 (FY18) revenue.

Year to date, the group has replenished RM124.52 million worth of jobs, representing 41.5% of target order book replenishment of RM300 million in financial year 2019 (FY19). Looking forward, we believe the group has a higher chance of replenishing its order book from building works in the near term, especially hospital jobs, in view of its track record in securing similar jobs.

For the longer term, we believe the group can leverage on its expertise and experience to secure jobs from the revived East Cost Rail Link (ECRL) project. However, we reckon that it will take some time for the relevant parties to finalise the design details for the new alignment before calling for tender.

We retain our earnings forecast as the new contract falls under our target order book replenishment forecast for FY19. Our valuation is pegged at 5.8 times forecasted financial year 2020 price earnings ratio. Gadang’s future earnings are underpinned by property unbilled sales of RM100.9 million and its sizeable construction order book of RM1.47 billion. — JF Apex Research, April 17