PETALING JAYA: Following a weaker-than-expected performance for the second quarter of financial year 2023 (2Q23), analysts have lowered their earnings forecast for Gadang Holdings Bhd
.
However, the construction group’s order book and unbilled property sales remain stable, and this will sustain its earnings for the next two years.
Gadang posted a lower after tax profit of RM300,000 in 2Q23 ended Nov 30, 2022 compared to RM36.8mil in the previous year and RM3.6mil in the previous quarter.
Apex Securities Research said this was mainly due to its overall lower performance, an unfavourable foreign-exchange translation effect and higher taxes paid. In that quarter alone, it pointed out that the group had paid 90% of its profit after tax for taxes.
Revenue dropped 49.7% year-on-year (y-o-y) but grew marginally 2.5% quarter-on-quarter (q-o-q). The drastic y-o-y difference was due to the disposal of a development property and a non-recurring transaction that happened during 2Q22.
It said gross profit margins have been resilient q-o-q at around 15.7% but were still lower than last year’s 20%. On the other hand, margins for earnings before interest and taxes have declined to 4.3% in the current quarter from 21.2% y-o-y and 6.8% q-o-q.
“We are lowering our revenue and earnings forecasts for financial year 2023 (FY23) by 27% and 65% as we project lower revenue recognition and low margins afflicted, while the outlook for the construction sector remains uncertain,” Apex said in a report.
However, the research firm has lifted estimates for FY24 by 20% and 71.9% respectively on optimism that it would be able to recognise more revenue and chart improved margins on the back of an overall better sector outlook.
Meanwhile, TA Research said it was adjusting its revenue recognition assumptions and margin forecasts for certain ongoing projects following the weaker-than-expected 2Q23 results.
TA Research said it had increased the price earnings multiple for the construction division from six times to eight times.
