Gagasan Nadi’s long-term contracts expected to offer recurring income

This article first appeared in The Edge Financial Daily, on December 21, 2018.
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Gagasan Nadi Cergas Bhd
Ace Market listing Gagasan Nadi Cergas Bhd (NADIBHD) is principally involved in:
i) building construction; ii) provision of facility management services of student hostels and related facilities; iii) operations of a district cooling system for the supply of chilled water; and iv) property development.

It has a track record of approximately two decades of delivering non-residential and residential buildings. Notable projects include the German-Malaysian Institute, student hostels for Universiti Teknikal Malaysia Melaka and International Islamic University Malaysia, seven polytechnics, and 4th military camp for the General Operations Force of the Royal Malaysia Police.

The group is also involved in facility management services. It provides financing, design, development and construction, and maintenance of student hostels and related facilities at International Islamic University Malaysia student hostel and Universiti Teknikal Malaysia Melaka student hostel.

The group currently operates a district cooling system, including a thermal energy storage tank and related facilities to supply chilled water for air-conditioning purposes in German-Malaysian Institute.

Moving forward, the group will supply chilled water and electricity to the Datum Jelatek Development under 30-year concessions.

To leverage on its core competency in building construction, the group has expanded its business into property development with the first project being the above finish floor mixed development. It has allocated approximately 31.5 acres (12.74ha) of its total land bank of 120.4 acres for current and upcoming developments.

The initial public offering (IPO) entails a public issue of 140 million new ordinary shares, and an offer for sale of 60 million shares at an IPO price of 30 sen per share.

The public issue includes: 20 million new shares for application by the Malaysian public; 20 million new shares for application by eligible directors, employees and persons; and 100 million new shares by way of private placement to selected investors.

Main competitive advantages are: i) experienced executive directors and key management team with a proven track record in the building construction industry; and ii) long-term contracts in place to provide recurrent revenue stream and provide some assurance of business continuity for the duration of these contracts.

Based on our valuation, at IPO price of 30 sen per share, NADIBHD is valued at a trailing price-to-earnings ratio of 6.5 times financial year 2018 annualised earnings.

We value the company at 35 sen, based on six times calendar year 2019 (CY19) construction earnings and 10 times CY19 recurrent earnings. Not Rated. — TA Securities, Dec 20