INSIDER TRADING @ 6 MARCH 2017

MD exercise 750,000 ESOS at 86 sen

CFO exercise 250,000 ESOS at 86 sen

MD sold >5m of warratns from 48 sen to 50 sen.

Don't try to read too much into the insider buying and selling.  Prior to bonus, split and free warrants and dividends, MD sold at about RM2.90 per share.

He did not know the direction of the share price.  If he know, he can  sell today and it's worth RM3.30 plus.

(Similarly, the IOI family is buying into IOIPG after the announcement of Rights Issue of 1 for 4 at about RM2.10, today's closing is RM1.87 per share).  

When Gadang share price went down to RM2.30 in Oct 2016, Kok Onn did not buy back.  Why didn't he?  Now he is exercising at 86 sen, or RM2.15 pre bonus, even better than RM2.30.

So, when the price went down below RM2.90, he does look smart.  Some investors said he knew in advance and taken advantages of that vs the investors out there.

And now it is pre-bonus price is RM3.30, he doesn't look smart.

Buy or sell based on fundamental of company.  Similar, in Ekovest, one fella director sold like no tomorrow at RM2.30 plus, now, before split & special dividend, Ekovest is worth about RM3.70.  This fella director, of course, did not know the direction of the share price or even the fundmental of the company.

INVESTORS' EXPECTATIONS IN TERMS OF CONTRACTS

Where is the contract?

What investor wanted (last 15 months)

1) MRT2

2) LRT3

3) Hospital project

4) RAPID contracts

What investors get: 

NONE OF THE ABOVE, instead, they get

1) Kwasa Land contract

2) Puchong Land contract

3) Damansara Perdana Land contract

4) Solar energy contract

Prices ex-bonus dropped to 89 sen from 106 sen.  Everyone say, see, I told you, contractor no construction contract sure "die".

Now, prices went from 89 sen to today high of 124 sen, also no construction contract.  

Some self claimed super investors said, sure this year earnings will be worst than last year after 1Q result & management keep on saying, no worries, this coming year should be more than last year earnings.  Only after a better Q2, where earnings improve a lot, and met HALF of last financial year earnings. Hmmmm, perhaps, management didn't lie.  Management also indicated only small portion of Capital City project was recognised.  Some, wants proof. How leh? Is management oblige to give us the proof? Must what they said be audited before we even belief them?

Management said the same thing about getting new contracts, but all end up "property contracts" instead (which is not bad as well)

PRICE ACTIONS - IS ABOUT EXPECTATIONS

So, basically all this ups and downs above are merely "price actions", + "syndicate play".  Mostly are hot air.  Of course, there is always a concern about construction contracts being depleted to 15 months.  

However, bare in mind, MRT2 have 3 more viaduct contracts not awared.  8 out of 11 contractors for MRT1 are given the MRT2 contracts.

So, Gadang is eyeing TWO MRT2 viaduct contracts (they are invited to participate).  Only 3 more Contractors left without MRT2 contracts.  And ONE of them is blacklisted, due to accident in MRT1.  So, based on this deduction alone, chances of getting MRT2 is GOOD.  However, please do not count the chicks before they hatches. 

The only consolation is that Gadang now has only 12 months to REPLENISH its construction contracts, else, they may end up become property developers (higher margin - but - lower PE ratio, due to risk involved).

No one bother about to discuss about the Water Concessions, Hydro Power, Plantation or Solar Energy.  Is it free?  They are good long term value in these projects. Just like some IPPs or Toll Roads.  Anyone know how much capital will be spent on these? What type of return?

CONSTRUCTION CONTRACTS - THE MORE THE BETTER?

Of course, the more the better, but preferbly the high margin ones.  Lately,  Vivocom has a huge cost overrun.  Not all big projects makes money, if their cost management not tight, cost may overrun, even for Gamuda or IJM Corp.  So, sometime, it could be a blessing not to have too many jobs and not able to handle well.  Of course, they must have at least 24-48 months book order before any fund managers is interested.  

Some semi-conductor biz, they only has 6 months book order, the MD even admit that, he is unable to see beyond 6 months.  But the market gave it a high PE multiple because of high margins.

PROFITS FOR FY2017

Should Gadang unable to get any CONSTRUCTION CONTRACTS as expected by END OF THE FINANCIAL YEAR, Gadang's FY18 growth is questionable, although internally they have 12 months to get it.  Management creditability & capability will also be questioned.  The stake is high.

WHAT IS THE FUNDAMENTAL VALUE

Most small size contractors listed has about RM1-2 billion contracts.  They are doing in a mutiple PE10 - 12x.  

Gadang PE is about 7.7x as most analysts expect it to get about RM100m profits (even without new contracts).  IF GADANG able to get the CONSTUCTION CONTRACTS and order book increase above RM1.0b, there is a good chance it willl be rerated to PE 10-12X.

ANY DEADLINE?

Only 3 months left till FY2017, i.e. 31 May 2017.  So, we have about 84 days left.  Can wait?  However this is MARKET EXPECTATION. 

Not a buy, sell or hold call.  Do your research before investing.  Invest at your own risk.  GOOD LUCK.  We are unable to predict the price.  

UPDATES ON 13 MARCH 2017

AWARDED MRT2 CONTRACT WORTH RM952 MILLION ON 9 MARCH 2017

1. As 13 March 2017, a few days after announcement of MRT2 contract, share price up from RM1.20 to RM1.27.

2.  Prior to the run up, share price is hovering at RM1.10 for few months.

3.  One of the analysts TP is RM1.37 on pretext Gadang can replenish another RM500m construction contract by FY17.

4.  Since the announcement, the contract is almost double what the analsyt expected.  This should add another 30sen per share to the original TP.

5.  I am not suprise, if the new TP is RM1.67 per share.  If there is another contract say RM500m comes in before end of FY17, another 10-20 sen upside is not suprising.

6.  So, can buy now? RM1.27, potential is good, upside 30-40% is within reach.