Gadang: Earning Took A Heavy Knock

Result Update

For QE31/8/2016, Gadang's net profit dropped by 45% q-o-q or 20% y-o-y to RM17 million while revenue dropped by 58% q-o-q or 30% y-o-y to RM105 million. Gadang recorded lower revenue of RM105 million for the current quarter as compared to RM249 million in the preceding quarter mainly due to completion of various construction projects. In line with this, the Group’s profit before tax decreased from RM38 million in the preceding quarter to RM22 million in the current quarter.


Table 1: Gadang's last 8 quarters' P&L


Table 2: Gadang's segmental results for QE31/8/2016 & QE31/5/2016


Chart 1: Gadang's last 11 quarters' P&L

Valuation

Gadang (closed at RM2.92 last Friday) is now trading at a trailing PER of 8.4x (based on last 4 quarters' EPS of 34.8 sen). At this PER, Gadang is deemed fairly attractive.

Corporate Exercise

On October 7, Gadang announced a share split of 1-to-2; bonus share issue of 1-for4 (after the split) and bonus warrant issue of 1-for-4 (after the split) [here]. We have seen a few of these "massive" exercises in the past 1-2 years and they have generally been well-received by the market.

Technical Outlook

Last Friday, Gadang dropped sharply from RM3.29 to close at RM2.92, after the announcement of the latest quarterly result. Gadang is now hanging onto the 50-day SMA line support. If this support fails, its next support is at the horizontal line at RM2.58.


Chart 2: Gadang's daily chart as at Oct 28, 2016 (Source: Shareinvestor.com)


Chart 3: Gadang's weekly chart as at Oct 28, 2016 (Source: Shareinvestor.com)

Conclusion

Despite the surprisingly weak financial performance, Gadang is rated aHOLD based on fair valuation and positive long-term technical outlook

Note:

I hereby confirm that I do not have any direct interest in the security or securities mentioned in this post. However, I could have an indirect interest in the security or securities mentioned as some of my clients may have an interest in the acquisition or disposal of the aforementioned security or securities. As investor, you should fully research any security before making an investment decision.