PETALING JAYA: Gadang Holdings Bhd earnings is expected to be more robust in the second half of its financial year ending May 31, 2022 (FY22) following the relaxation of movement restrictions, according to TA Securities Research.

       As of end-November 2021, the group’s outstanding construction order book stood at RM485mil, translating to about 1.3 times FY21 construction revenue, noted the research unit.

       Gadang’s subsidiaries are involved in civil engineering and construction, property development, water supply and mechanical and electrical engineering services.

       “This is expected to provide earnings visibility to the construction division for the next 18 months.

       “For the property division, its unbilled sales improved further to RM193mil from RM188mil a quarter ago,” said TA Securities Research.

       The research unit has reduced its target price-to-earnings ratio for the construction division from eight times to seven times, as slow order book replenishment for the division remains a huge concern, and roll forward its valuation base year to 2023.

       TA Securities Research maintained its “sell” call on Gadang’s stock but revised its target price higher from 31 sen to 38 sen, based on sum-of-parts valuation.

       Meanwhile, for its first half of FY22, the group posted a core profit of RM6.6mil versus a core loss of RM2mil a year earlier, while revenue grew by 39.1% year-on-year to RM394.3mil.

       The stronger earnings performance was mainly contributed by higher earnings contribution across all business divisions.

       For the construction division, the group posted a pre-tax profit of RM3.1mil compared with a pre-tax loss of RM3.4mil a year ago, thanks to better profit margins from certain ongoing projects.

       On the other hand, profit contribution from the property division increased by 39.7% to RM14.2mil from RM10.1mil, due to better sales and higher work progress for ongoing development projects.

       Meanwhile, pre-tax profit for the utility division increased by 17.9% to RM4.8mil from RM4.1mil the previous year, owing to lower operating costs.

       On a quarter-on-quarter basis, core profit for the second quarter of FY22 dropped 55.8% to RM2mil although revenue grew 92.9% to RM259.7mil.

       The weaker earnings performance was primarily dragged by construction and utility divisions, while the stronger revenue was mainly boosted by a one-off transaction.

       TA Securities Research said Gadang’s results for the first half of FY22 were within expectations, as the research unit expected the earnings will be largely back-end loaded following the gradual reopening of economic activities.