Gadang 3Q net profit dragged down by construction division

KUALA LUMPUR (May 14): Gadang Holdings Bhd’s net profit fell 24.6% to RM10.03 million in the third quarter ended Feb 29, 2020 (3QFY20), from RM13.3 million in the same period last year, mainly due to lower earnings from the construction division.

Quarterly revenue, however, was up 3.32% to RM212.14 million, from RM205.33 million, according to a filing with Bursa Malaysia today.

For the cumulative nine months ended Feb 29, 2020, its net profit slipped 23.79% to RM35.72 million, from RM46.87 million last year, while revenue grew 10.83% to RM557.46 million, from RM502.99 million.

Gadang attributed the lower earnings for the period to lower profit margin reported for ongoing construction projects, fair value loss on quoted investment of RM6.80 million and an expense of borrowing cost on investment properties of RM1.65 million.

The movement control order (MCO) since March 18, 2020 has impacted the group’s construction and property development projects, with the sudden suspension of its ongoing activities.

While the operations have since recommenced, strict standard operating procedures disrupted operational efficiency, resulting in sub-optimal utilisation of assets and the dislocation of resources.

As a result of the MCO and conditional MCO (CMCO), the construction and property divisions have experienced delays in completing its projects on schedule.

On prospects, as the construction division’s existing outstanding order book stands at RM887 million, this would sustain its operations for the next two years, Gadang said. However, it cautioned that the award of new large infrastructure contracts has been slow, saying this will be “a major challenge for the division”.

For the property division, it has total unbilled sales of RM107.8 million.

While the sales of its townhouse project in Putra Perdana was encouraging prior to the implementation of the MCO, Gadang said the freeze on selling activities during the MCO and CMCO, as well as the lower economic activity in the foreseeable future, will have a significant impact on property sales.

“Management will continuously evaluate its current ongoing projects and new launch initiatives, in order to sustain its operations,” the company added.

Gadang noted that its utility division’s concession water treatment assets have not been significantly impacted by the Covid-19 pandemic in Indonesia and will continue to contribute a sustainable income stream to the group.

“The construction of the 9MW mini-hydro power plant in Lintau, Sumatera, is progressing well and is scheduled for completion by the end of 2020,” Gadang said.

Shares of Gadang closed half a sen or 1.23% lower at 40 sen today, valuing the company at RM291.22 million.

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