COMPANY UPDATE

Monday, April 01, 2019

FBMKLCI: 1,643.63
Sector: Construction

THIS REPORT IS STRICTLY FOR INTERNAL CIRCULATION ONLY*

Gadang Holdings Berhad TP: RM0.72 (+9.1%)

Last Traded: RM0.66
Varying JV Terms for Capital City BUY
Ooi Beng Hooi Tel: +603-2167 9612 benghooi@ta.com.my www.taonline.com.my

Background Share Information

To recap, based on a previous JV agreement between a wholly-owned Bloomberg Code GADG MK
Bursa GADANG
subsidiary of Gadang, Achwell Property Sdn Bhd (APSB), and Capital City
Stock Code 9261
Property Sdn Bhd (CCPSB), for an integrated development (10 levels retail Listing Main Market
podium with 5 tower blocks) in Johor Bahru, known as Capital City, CCPSB, Share Cap (mn) 661.7
being the property developer, had agreed to pay APSB, the land owner, an Market Cap (RMmn) 436.722
52-wk Hi/Lo (RM) 0.94/0.475
entitlement of 16.7% of the GDV of the Capital City integrated development
12-mth Avg Daily Vol ('000 shrs) 2267.4
project. The amount is to be paid within 66 months from 26 August 2014, i.e. Estimated Free Float (%) 56.7
25 February 2020 (project completion date). Beta 1.61
Major Shareholders (%)
Meloria Sdn Bhd - 13.22
Variation to JV Terms Sumber Raswira Sdn Bhd - 12.32
However, due to the soft property market in Johor Bahru, CCPSB is unlikely EPF - 6.06
to complete the remaining components of the development (the revised hotel Urusharta Jamaah Sdn Bhd - 5.11
suites tower block, serviced suites tower block and 3 serviced apartments
Forecast Revision
tower blocks) within the stipulated project completion date. FY19 FY20
Forecast Revision (%) - -
CCPSB intends to raise additional financing to complete the remaining Net profit (RMmn) 72.5 78.6
Consensus 77.6 83.0
components of the development and to fund the operations of the retail
TA's / Consensus (%) 93.4 94.7
podium. As such, CCPSB has requested APSB to consider transferring the land Previous Rating Buy (Maintained)
to CCPSB. This is to enable it to charge the land to a financier to raise
financing for the reasons stated above. Financial Indicators
FY19 FY20
Net Debt / Equity (x) (0.2) net cash
APSB has agreed to the request of CCPSB to enter into the following CFPS (sen) (59.4) 26.3
agreement: i) Settlement Agreement; ii) Put Option Agreement; iii) Call Option Price / CFPS (x) (1.1) 2.5
Agreement. ROA (%) 4.7 5.6
NTA/Share (RM) 0.8 0.8
Price/NTA (x) 0.7 0.6
Among the salient points of the agreements:
i) APSB entitlement has been revised to RM250mn only (Revised Share Performance (%)
Entitlement Sum). Price Change GADANG FBM KLCI
1 mth 12.8 (3.4)
ii) As of 21 March 2019, CCPSB has paid a sum of about RM149.79mn of 3 mth 29.4 (2.8)
the entitlement sum to APSB. As such, the remaining outstanding sum is 6 mth (7.0) (8.3)
about RM100.21mn, which will be satisfied via contra of the identified 12 mth (28.3) (11.8)
unsold completed units of the retail podium. (12-Mth) Share Price relative to the FBMKLCI
iii) However, under the Put Option Agreement, APSB has the right to
require CCPSB to purchase from APSB the remaining units which will
enable APSB to realise a total cash sum of RM312mn at the end of
option period.
iv) Similarly, CCPSB has been granted a call option which gives it the right
to acquire from APSB the remaining units during the option period at
the same option purchase price.
v) Among the conditions precedent in the Settlement Agreement include
a) the approval of the shareholders of Gadang; b) the approval of the
shareholders of Capital World Limited (CWL), the ultimate holding Source: Bloomberg
company of CCPSB, if required; and c) the loan sum of credit facilities
by financier to CCPSB shall not be less than RM50mn.

Page 1 of 4
 1-Apr-19
vi) The call and put options are allowed to be exercised during the 3
months from or after:
a) the expiry of 36 months from the date of settlement agreement;
b) CCPSB achieves: 1) sale of ground floor units (retained by
CCPSB) which amount to more than RM150mn; 2) sale of the
ground floor retained units and/or the units of revised hotel suites
tower block and/or the serviced apartments tower block which
amount to RM200mn.
c) The previous shareholders of CCPSB collectively hold less than
33.33% of the shares in CWL.
d) CWL holds less than 50% of the shares in CCPSB.

The revised entitlement sum of RM250mn was arrived after considering the
revised GDV of the project, which is lower at approximately RM1.47bn (Based
on a GDV of RM1.47bn, APSB’s entitlement sum would be RM245.54mn),
versus RM1.8bn projected in 2014. This was due to higher discounts given to
purchasers to boost sales given the current weak property market in Johor
Bahru.

Also, additional discounts and rebates of approximately 40% were given to

APSB to compensate for the identified retail units are with larger floor area
and are located at less strategic locations within the retail podium, and
approximately 76% of the identified units are Bumiputra units.

Given the previously anticipated entitlement sum was about RM300.6mn

(16.7% of RM1.8bn), option agreements were entered into to enable APSB to
realise additional proceeds from the disposal of the remaining units to CCPSB
to bring its total entitlement to RM312mn upon the exercise of either the put
option or call option.

The proposed variation is expected to be implemented by 3Q19.

Our View
We are mildly positive on the proposed variation.

While there is no assurance that CCPSB will fulfil its obligation to pay the
option purchase price for the remaining units when the put option is exercised,
we see that both parties are working towards amicable solution to address the
financing constraint faced by CCPSB amid the weak property market in Johor
Bahru. Without this arrangement, CCPSB may have difficulty in proceeding
with the remaining component of the development and operating the retail
podium, which neither side would benefit if the unresolved funding issue cause
a stall to the development of remaining components and disruption to the
operation of the mall.

We think the agreements are reasonable as it would allow Gadang to realise

the entitlement sooner, instead of depending on the progress of the
development of remaining components, which are still uncertain at this
juncture.

Impact
No change to FY19 to FY21 earnings forecasts, pending further details and
development on the variation proposal.

Valuation
Maintain BUY call on the stock with an unchanged target price of RM0.72.
Page 2 of 4
 1-Apr-19

Table 1: Sum-of-Parts Valuation

SOP valuation (RMmn) Remark
Cons truction 196.6 6x CY19 net profit
P roperty 191.3 5x CY19 net profit
Utilities 50.3 10x CY19 net profit
Wa rra nt convers ion 129.3
TOTAL 567.3
E nla rg ed s ha re ba s e 791.0
Target price 0.72

Table 2: Earnings Summary (RMmn)

Profit & Loss (RMmn) Balance Sheet (RMmn)
YE May 31 FY17 FY18 FY19F FY20F FY21F YE May 31 FY17 FY18 FY19F FY20F FY21F
Revenue 553.9 594.3 618.0 741.5 855.1 Fixed assets 63.6 73.8 75.1 76.4 78.4
EBITDA 149.9 139.9 117.7 121.4 131.5 Concession assets 91.6 116.5 104.9 94.4 84.9
Dep. & amortisation (6.1) (6.4) (13.1) (12.0) (11.0) Others 47.3 118.9 118.9 118.9 118.9
Finance cost (2.3) (1.8) (2.9) (2.3) (2.4) Total NCA 202.5 309.3 298.9 289.7 282.3
PBT 141.6 132.6 101.7 107.1 118.2 Cash & equivalents 261.9 277.3 69.2 164.6 270.4
Core PBT 141.6 143.1 101.7 107.1 118.2 Others 946.5 1,112.5 1,012.6 982.8 982.8
Taxation (38.0) (37.2) (25.9) (27.3) (30.1) CA 1,208.4 1,389.9 1,081.8 1,147.4 1,253.2
MI 0.5 0.1 3.3 1.2 1.2 Assets held for sale 15.5 0.0 0.0 0.0 0.0
PATAMI 100.1 95.1 72.5 78.6 86.8 Total Assets 1,426.5 1,699.1 1,380.7 1,437.1 1,535.5
Core PATAMI 100.1 105.6 72.5 78.6 86.8
Core EPS (sen)* 15.9 15.4 10.8 11.5 12.6 ST debt 48.8 59.9 89.7 97.5 97.5
GDPS (sen)* 3.0 3.0 2.0 2.0 2.5 Others 350.2 439.4 217.2 261.3 261.3
Div yield (%) 4.5 4.5 3.0 3.0 3.8 CL 398.9 499.3 306.9 358.8 358.8

Cash Flow (RMmn) LT borrowings 143.8 223.5 104.7 57.5 60.9

YE May 31 FY17 FY18 FY19F FY20F FY21F Others 252.0 268.6 186.7 159.8 171.6
PBT 141.6 132.6 101.7 107.1 118.2 LT Liabilities 395.9 492.1 291.4 217.3 232.5
Dep. & amortisation 22.4 23.1 13.1 12.0 11.0 Liabilities held for sale 0.5 0.0 0.0 0.0 0.0
Other adjustments (6.1) 13.7 (2.9) (2.3) (2.4)
Changes in WC (69.6) (69.3) (204.2) 47.1 11.8 Share cap 331.7 338.4 350.8 363.2 375.6
Income tax (50.2) (46.8) (25.9) (27.3) (30.1) Reserves 291.5 364.9 423.9 488.9 558.4
Operational cash flow 38.0 53.2 (118.3) 136.6 108.4 NCI 8.0 4.4 7.7 8.9 10.1
Capex (4.7) (4.8) (2.8) (2.8) (3.5) Shareholders' fund 623.2 703.3 774.7 852.1 934.0
Others (16.7) (80.6) 0.0 0.0 0.0 Total Equity 631.2 707.7 782.4 861.0 944.2
Investment cash flow (21.4) (85.4) (2.8) (2.8) (3.5) Total Equity & Liabilities 1,426.5 1,699.1 1,380.7 1,437.1 1,535.5
Debt raised/ (repaid) (7.1) 83.3 (89.0) (39.4) 3.4
Equity raised/ (repaid) 7.2 5.8 12.4 12.4 12.4 Ratio
Dividend (18.1) (19.8) (13.4) (13.6) (17.3) YE May 31 FY17 FY18 FY19F FY20F FY21F
Others (32.2) (34.7) 2.9 2.3 2.4 EBITDA margin (%) 27.1 23.5 19.0 16.4 15.4
Financial cash flow (50.2) 34.7 (87.1) (38.3) 0.9 Core EPS (sen)* 15.9 15.4 10.8 11.5 12.6
Net cash flow (33.5) 2.5 (208.2) 95.4 105.8 EPS Growth (%) (5.6) (3.2) (30.0) 6.9 8.9
PER (x) 4.2 4.3 6.1 5.7 5.3
GDPS (sen)* 3.0 3.0 2.0 2.0 2.5
Div Yield (%) 4.5 4.5 3.0 3.0 3.8

Net cash (RMm) 69.3 (6.1) (125.2) 9.6 112.0

Net gearing (x) net cash (0.0) (0.2) net cash net cash
ROE (%) 17.4 15.9 9.8 9.7 9.7
ROA (%) 7.6 6.8 4.7 5.6 5.8
NTA/share (RM)* 0.8 0.8 0.9 1.1 1.2
P/NTA (x) 0.9 0.8 0.7 0.6 0.6
Note: *Adjusted for 1 into 2 share split and 1 for 4 share bonus issue in Nov 16

Page 3 of 4
 1-Apr-19

(TH I S P A GE IS IN TE N TI ON AL L Y L E F T B L AN K )

Stock Recommendation Guideline

BUY : Total return within the next 12 months exceeds required rate of return by 5%-point.
HOLD : Total return within the next 12 months exceeds required rate of return by between 0-5%-point.
SELL : Total return is lower than the required rate of return.
Not Rated: The company is not under coverage. The report is for information only.
Total Return is defined as expected share price appreciation plus gross dividend over the next 12 months. Gross dividend is excluded from total return
if dividend discount model valuation is used to avoid double counting.
Required Rate of Return of 7% is defined as the yield for one-year Malaysian government treasury plus assumed equity risk premium.

Disclaimer
The information in this report has been obtained from sources believed to be reliable. Its accuracy and/ or completeness is not guaranteed and opinions are subject to change without
notice. This report is for information only and not to be construed as a solicitation for contracts. We accept no liability for any direct or indirect loss arising from the use of this
document. We, our associates, directors, employees may have an interest in the securities and/or companies mentioned herein.

As of Monday, April 01, 2019, the analyst, Ooi Beng Hooi, who prepared this report, has interest in the following securities covered in this report:
(a) nil

Kaladher Govindan – Head of Research

TA SECURITIES HOLDINGS BERHAD (14948-M)

A Participating Organisation of Bursa Malaysia Securities Berhad
Menara TA One 22 Jalan P. Ramlee 50250 Kuala Lumpur Malaysia Tel: 603 – 2072 1277 Fax: 603 – 2032 5048
www.ta.com.my

Page 4 of 4