Cost pressures to weigh on Gadang performance

PETALING JAYA: Given Gadang Holdings Bhd‘s weaker-than-expected results in the fourth quarter ended May 31, 2024 (4Q24), TA Research has revised downwards the construction company’s earnings estimates for financial year 2025 (FY25) and FY26 by 21.6% and 35.8%, respectively.

However, for FY27, it anticipates an earnings increase of 16%.

Gadang reported a net loss of RM9.4mil in 4Q24, while for the full year it made a net profit of RM4.7mil. Higher-than-anticipated project operating costs and tax expenses weighed on the bottom line.

Year-on-year, Gadang’s FY24 revenue increased by 17.6% to RM583.6mil, driven by higher revenue recognition in the construction division and improved property sales.

As a result, core profit before tax rebounded to RM11.3mil from a core loss before tax of RM0.9mil.

This was supported by higher contributions from the property division and the utility division, although partially offset by losses in the construction division.

“As of end-May 2024, the group’s construction order book and unbilled property sales stood at RM1.1bil (equivalent to 4.1 times FY24 construction revenue) and RM202.3mil, 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,” said TA Research in a report.

Following the earnings revision, the research house said it had reduced the stock’s target price to 37 sen from 55 sen previously, which is inclusive of environmental, social and governance premium of 3% based on its four-star rating.

“Downgrade the stock to a ‘sell’ from ‘hold’ previously due to negative risk-reward ratio,” said TA Research.