Tuesday, December 08, 2009

Why I Like Gadang Holdings



Gadang is involved in civil engineering, building construction, property development and water concessions. This is another of those companies with minimal research coverage. For the year ended May 2009, the company registered a revenue of RM245m and a net profit of just RM3.3m, way down from its 2008 figure of RM7.5m. Part of the reason why the stock has been off the radar was the 3 lawsuits, two of the are just minor issues with the amount less than RM3m in dispute. The big one was with Bluwater Developments. Recently, Gadang has acquired 7 parcels of vacant leasehold bungalow land (74,804 sf) in Sri Kembangan, Sungai Besi for RM11.22 as payment of debts owed by Bluwater Developments. So, case closed.

Catalyst #1: Earnings recovery - Bearing in mind that the company made just RM3.3m in net profit for the year ended May 2009, the company's first quarter results for the period ended August 2009 saw revenue hitting RM58.4m and a net profit of RM3.2m, almost matching the whole of last year. That quarter's net EPS came to 3.26 sen. A safe way would be to annualise that = 13.04 sen per share. However, that would still be highly conservative.

Catalyst #2: The company is bidding for over RM2bn of projects. It is likely to be successful for works for the new locost terminal in Sepang and the gas fired power plant in Kimanis, Sabah, owing to its track record in those fields. Better economic conditions should see the revival of the talks to build a coal-fired power plant in Vietnam.

Catalyst #3: Water - This is the trump card that not many are aware of. It has a substantive water business in Indonesia. The revenue was RM11.4m from the water segment last year and is expected to hit close to RM20m in 2010. Thanks to its track record, it is likely to win new contracts in Vietnam and China for water related works. Gadang should be close to announcing a RM300m water treatment plant in Vietnam that has the capacity to produce 300,000 cu m of water a day. The project is located in Long An, a fast developing industrial province near Ho Chi Minh city.

Catalyst #4: Property development - Currently its GDV stands at RM630m which is enough to keep it busy for the next 5 years. Existing projects of mixed developments in Tampoi, Johor and Pokok Sena, Kedah. Plus a luxury development in Tanjung Bungah, Penang (GDV RM200m).

Net asset per share is at RM1.47. Net gearing at a comfortable 43%. Dividend steady at 2.5 sen for the past 3 years. Tried to breach its 52 week high of RM1.04 back in early November, and it looks to be making another attempt to do so now. Paid up just 117.96m shares. Earnings recovery coupled with a strong pipeline of "new projects" makes this a quite under-appreciated counter. The stock has a good underpinning of existing projects to help it deliver good results in the coming quarters, with a strong potential for securing important new projects over the coming weeks and months. Timely.

p/s photo: Deanna Yusoff

1 comment:

Kingsmen said...

tks dali.....got stuck with it @ 88cts the other day...now its time to let go...for a handsome profit....hehehe