Review

• Excluding the one-off gain totalling RM6.5mn, GADANG’s 1HFY25 core earnings of RM6.9mn beat our expectation, accounting for 59.5% of our full-year estimates. The improvement was mainly driven by higher-thananticipated project margin in construction divisions, supported by better operating cost measures.

• YoY, its 1HFY25 revenue rose by 11.8% to RM326.3mn, thanks to higher progress billing from its existing construction projects. That said, the core earnings lowered by 11.0%, underpinned by weaker earnings performance in 1QFY25 and high base effect.

• QoQ, its 2QFY25 topline advanced by 19.7%, supported by higher revenue recognition from its construction projects coupled with improving project margins. As a result, its quarterly core profit jumped from RM1.1mn to RM5.8mn.

Impact

• Given the stronger-than-expected results, we have toned up our project margin assumptions for certain ongoing construction projects. Consequently, our FY25-27F earnings estimates were revised upwards by 14.5%/4.9%/4.1%, respectively.

Outlook

• As of the end of November 2024, the group's construction order book stood at RM1.0bn, equivalent to 3.6x its FY24 construction revenue, while unbilled property sales amounted to RM329mn. Looking ahead, the property division is expected to remain a key contributor, driven by attractive sales incentives and an aggressive pricing strategy.

Valuation

• Following the earnings revision, we take this opportunity to roll forward our valuation base year to CY26 earnings and arriving at a higher SOPderived target price of RM0.42 (previously RM0.31). Upgrade to Buy call on the stock.

Source: TA Research - 23 Jan 2025