Gadang Holdings Bhd
(Feb 18, 57 sen)
Maintain buy with a target price (TP) of 72 sen: As at end-November 2018, Gadang Holdings Bhd’s construction division had a total outstanding order book of RM1.4 billion, derived from five ongoing projects.
It has a tender book of RM3 billion, comprising mainly work packages for the Pan Borneo Highway in Sabah. It is also bidding for bridge works and rail-related work packages. Awaiting fresh leads, Gadang is keen to explore opportunities in the East Coast Rail Link (ECRL), coastal road and second trunk road in Sarawak, and hospital projects.
Boosted by variation orders in the previous quarter, and as the outstanding order book of Petroliam Nasional Bhd’s refinery and petrochemical integrated development (Rapid) project work packages which generated high margin depletes, its construction profit before tax (PBT) margin has been normalising since the third quarter of financial year 2018 (3QFY18), with the most recent 2QFY19 construction PBT margin declining to 10.2% . As the Rapid project is on its tail-end, we expect the construction PBT margin for the coming quarter to ease further to mid- to high single digit.
No change to our FY19 to FY21 earnings forecasts. However, we trim our dividend payout per share assumptions of three sen each for FY19, FY20 and FY21 to two sen, two sen and 2.5 sen respectively, in line with a historical payout of close to 20%.
No change to our TP of 72 sen. Maintain “buy” on valuation ground. — TA Securities, Feb 18