Disposal of 10,779 sqm of land in Sungai Buloh for RM65m

Gadang has announced that its wholly-owned subsidiary, Gadang Construction Sdn Bhd, has entered into a conditional sale and purchase agreement with property developer Opulent Abode Sdn Bhd. The agreement involves the disposal of 10,779 sqm (equivalent to 2.7 acres) of leasehold commercial land located in Sungai Buloh, Selangor, for a total cash consideration of RM65mn (equivalent to RM561 psf). The disposal is expected to be completed by 1QCY25.

Our View

Gadang’s near-term focus remains on improving operating cash flow and reducing its debt through various measures, including the issuance of new shares via private placement. Therefore, we are not surprised by the announcement as this land disposal aligns with the group’s strategy to lower its borrowing. According to the announcement, the RM65mn in sale proceeds will be fully utilised within 12 months as follows:

Notably, the disposal is expected to reduce Gadang’s interest-bearing debt from RM187.2mn as of May 2024 to RM171.5mn, bringing the gearing ratio down from 0.24x to 0.22x. As of the end of May 2024, the group’s construction order book stood at approximately RM1.1bn (equivalent to 4.1x FY24 construction revenue), while unbilled property sales totalled RM202.3mn.

Forecast

No changes to our FY25-27 earnings estimates, pending the completion of the disposal.

Valuation

Maintain Sell with an unchanged SOP-derived target price of RM0.37, inclusive of 3% ESG premium based on our 4-star rating.

Source: TA Research - 14 Oct 2024