Background
Gadang Holdings Bhd ('Gadang') is involved in 3 main businesses: construction, property development and utility. The contribution by each division is outlined below:
Diagram: Gadang's segmental revenue & profit contribution for FY2015 & FY2016
Historical Financial Performance
Gadang's top-line and bottom-line grew strongly in the past 5 years.
Chart 1: Gadang's P&L for last 10 years
We can see that the growth came mainly from the construction and property development segments.
Chart 2: Gadang's segmental revenue & profit contribution for last 5 years
Recent Financial Results
For QE31/5/2016, Gadang's net profit increased by 21% q-o-q or 24% y-o-y to RM30.5 million while revenue grew by 41% q-o-q or 46% y-o-y to 249 million. Revenue increased q-o-q mainly due to higher progress billings for work done from on-going construction and property development activities. The higher revenue led to higher profits.
Table: Gadang's last 8 quarters' P&L
Chart 3: Gadang's last 10 quarters' P&L
Financial Position
Gadang's financial position as at 31/5/2016 is mixed. Its current ratio is adequate at 2.7x (or at 1.4x excluding property under development) while total liabilities to equity stood at 1.3x. The elevated gearing position is a concern which the company is addressing by raising funds by privately placing out 10% of its share capital (or 23.511 million shares) in April this year. Howevr, it may have to do more capital raising exercise as the gearing ratio is still elevated as at 31/5/2016.
Valuation
Gadang (closed at RM2.48 today) is now trading at a trailing PER of 6.8x (based on last 4 quarters' EPS of 36.42 sen). At this PER, Gadang is deemed fairly attractive.
Technical Outlook
Gadang broke above its long-term downtrend line, RR at RM0.90 in 2013. Its immediate resistance will come from the horizontal line at RM2.50-2.60.
Chart 4: Gadang's monthly chart as at July 22, 2016 (Source: Shareinvestor.com)
Another angle to look at the rise in Gadang;s share price is to draw an irregular upward channel on the price chart. The share price will soon be testing the upper line at RM2.50.
Chart 5: Gadang's monthly chart as at July 22, 2016 (Source: Shareinvestor.com)
Finally, a good way to see the potential of this stock is to place the price chart next to its profit trend. If Gadang can maintain its strong profit growth, its price rally may continue.
Chart 5: Gadang's monthly chart for past 10 years compared to its bottom-lines
Conclusion
Based on good financial performance, reasonable valuation & positive technical outlook, Gadang could be a good stock for long-term investment.
Note:
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, Gadang.
GADANG (9261) - Gadang: Earnings Continues to Grow
http://nexttrade.blogspot.my/2016/07/gadang-earnings-continues-to-grow.html
