Gadang extends gains after RHB Research upgrade on recent selldown

KUALA LUMPUR (Nov 15): Shares in Gadang Holdings Bhd extended gains in the mid-morning trades today, after RHB Research upgraded the stock to Buy, from Neutral, following the recent sell down, as well as bright earnings prospect ahead. 

As at 11.51 a.m., the counter gained eight sen or 3.04% at RM2.71, after touching a high of RM2.72 earlier, making it one of the top gainers across the stock exchange.

A total of 6.81 million shares were seen having been traded between RM2.64 and RM2.72, as compared with its 65 days average trading volume of 3.81 million. 

The current price values it at RM687.94 million. It was trading at a trailing 12 months price to earnings ratio of 0.39 times. 

In a note to clients yesterday, the research outfit of RHB Bank Bhd said it has upgraded Gadang to Buy with unchanged target price of RM3.50, premised on the company's medium term earnings visibility, coupled with longer-term growth prospects from other business units.

"While Gadang has yet to win any construction jobs thus far in financial year 2017 (FY17), its management appears confident of at least maintaining its robust earnings recorded in financial year 2016 (FY16)," said RHB Research analyst Ng Sem Guan. 

According to him, Gadang's outstanding construction orderbook of RM604 million as at August and unbilled property sales of RM211 million as at September should provide strong earnings visibility over the next 12-18 months.

"Separately, its utilities unit continues to churn out stable earnings from four water supply concessions in Indonesia — more than offseting minor losses at its plantations," he added. 

In terms of job tendering, Ng said the construction company has a tender book of RM5 billion, which includes the hospital and expressway building jobs. 

"The company is also keen on participating in Light Rail Transit 3 (LRT3) and High Speed Rail (HSL) projects. We deem our RM300 million to RM500 million annual orderbook replenishment assumption to be prudent," he added. 

In the longer term, Ng also views the company has several drivers in place to sustain its earnings. 

"Aside from existing landbank, Gadang was recently awarded the development rights for a 24.08-acre plot called R3-1 within the Kwasa Damansara township by master developer, Kwasa Land Sdn Bhd, with estimated gross development value (GDV) of RM700 million.

"Management expects its 2,600 acres of planted oil palm with average age of 4-5 years to start contributing positively from financial year 2018 (FY18), while contributions from the 60%-owned 9 megawatts (MW) new hydro power plant in Indonesia should begin from financial year 2019 (FY19)," he noted. — theedgemarkets.com