HLIB Research starts coverage of GDB, with target price at RM1.37

HLIB Research starts coverage of GDB, with target price at RM1.37
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KUALA LUMPUR (Jan 18): Hong Leong Investment Bank (HLIB) Research has initiated coverage of GDB Holdings Bhd at 98.5 sen, with a "buy" call and target price (TP) of RM1.37, as it foresees the firm's earnings for the financial year ending Dec 31, 2021 (FY21) and FY22 to more than double to RM60.7 million and RM62.4 million respectively in tandem with an enlarged order book.

In a note today, HLIB's Jeremy Goh forecast GDB’s FY20 earnings to come in at RM27.7 million (-5% year-on-year), significantly better than the 20%-80% estimated decline for other construction players.

“GDB managed to grow its annual job wins from an average RM396 million (pre-listing) to RM736 million (post-listing), culminating in RM1.25 billion secured in FY20.

“Its outstanding order book has quadrupled since FY18 to RM2.2 billion, translating into a sector-high cover ratio of 6.8 times (excluding Malaysian Resources Corporation Bhd or MRCB) to be executed over the next three years,” Goh added, expecting GDB's earnings to more than double in FY21 to RM61 million.

Goh noted that GDB’s job flow is continuing as it is supported by sizeable development projects undertaken by its repeat clientele.

Therefore, all credit goes to GDB’s management which has an unblemished track record of early project completion, leading to substantial savings on running cost as well as establishing a widening clientele base.

“Some its existing recurring clients like TRC and Hap Seng Land are in the midst of embarking on sizeable development projects, which augur well for GDB’s future job  prospects,” the analyst added.

Goh also pointed out that GDB possesses an enviable balance sheet which is debt and pairing this with healthy turnover ratios makes for a burgeoning cash pile.

“GDB is on course to record a commendable 3% revenue growth in FY20 despite various operational halts (from Covid-19 headwinds) just by executing larger contracts it won in FY19.

“We expect GDB’s cash pile to grow in FY21-22 in tandem with stronger earnings forecasts buoyed by normalising collection post-pandemic,” he added.

He also expects that GDB will stick to its dividend policy of paying a minimum 30% of net earnings yearly, which would imply a current yield of 2%/3%/3.6% for FY20-22.

Goh’s TP for GDB was based on forecast FY21 earnings per share (EPS) of 9.7 sen pegged at an ex-cash price-to-earnings (PE) multiple of 13 times.

“Our TP implies an upside of 39.1% with a 3% dividend yield, and we believe this is justified by GDB’s sector-high order book cover as well as [with it] boasting a near-sector-leading return on equity (ROE),” he said.

At the time of writing today, GDB had dipped 0.51% or half a sen to 98 sen, with a market value of RM612.5 million.

Surin Murugiah