KUALA LUMPUR (July 25): Shares of Gadang Holdings Bhd (KL:GADANG) nearly erased three weeks of gains after TA Securities, the sole research house covering the stock, downgraded the construction company to ‘sell’ on weaker-than-expected results.
Gadang fell nearly 10% to 42.5 sen, its lowest since July 2. The stock closed at 43 sen, giving the company a market capitalisation of RM313 million on Bursa Malaysia. Trading volume totaled 18.97 million shares, more than triple the 20-day moving average.
TA Securities also cut target price to 37 sen from 55 sen. Excluding extraordinary gains totalling RM3.2 million, Gadang’s core net profit of RM1.5 million (+165.6% year-on-year) for the financial year ended May 31, 2024 (FY2024) fell short of house expectations, making up only 15.2% of the full-year estimate.
In a note on Thursday, the research house said this negative variance was primarily due to higher-than-anticipated project operating costs and tax expenses.
“Given the weaker-than-expected results, we have made the following adjustment to our FY2025/FY2026 earnings estimates: i) revised our progress billing and margin assumptions for certain ongoing construction projects, and ii) adjusted our effective tax rate assumption higher, considering the historically high tax structure. As a result, our earnings estimates for FY2025/FY2026 have been revised downward by 21.6% and 35.8% respectively.
“Additionally, we introduce our FY2027 earnings estimate, anticipating an earnings growth of 16%,” the research house said.
TA Securities said as of end-May, Gadang's construction order book and unbilled property sales stood at RM1.1 billion (equivalent to 4.1 times FY2024 construction revenue) and RM202.3 million respectively, indicating a positive earnings outlook.
“The property division is expected to remain a key earnings contributor, supported by attractive sales incentives.
“However, we are cautious about the construction division's progress, which may face higher operating costs due to delays,” the house said.