After careful consideration, I must admit my mistake in giving you the wrong opinion of Gadang. I have requested the Administrator of i3investor.com to withdraw my article under the title “My Opinion of Gadang after the AGM & EGM” which was published yesterday.
Although Gadang has been making increasing profit in the last 5 years as shown in its latest annual report, I do not think it will be able to make more profit in the current financial year than last financial year. My reasons are:
- Its annual EPS was 40 sen and its 4th quarter EPS was 15sen but its 1st quarter was only 5sen for the current financial year.
- With a large portion of its order book has been completed.
- Although it has submitted several billion Ringgit worth of tenders, it has not received any new contract award yet.
- The property market is so depressed and it will take many more years for the market to turn around.
I do not recommend you to buy Gadang because it does not comply with my share selection golden rule. It cannot make more profit in this current year than last financial year. When it announces its annual profit which is likely to be less than last year, its share price will fall.
After having said all the negative things, I am very impressed by Gadang’s ability to secure a Singapore property company as joint venture partner to develop its land named Capital City at Iskandar Johor Bahru. Gadang bought the land about 20 years ago and it revalued it for the JV. It has no risk. The Singapore partner has injected this development into its listed company in Singapore and is responsible for the development cost and sales.
I am also impressed by its ability to secure a joint venture of 121 acres of land namely Laman Land View, Cyberjaya.
Kwasa Land Bhd must have faith to select Gadang as joint venture partner to develop 24 acres of its land in the choicest area near Kuala Lumpur. The JV period is for 20 years. Although the property market is soft currently, Gadang will only start building when there are buyers. Gadang can wait because it has no holding charges, it did not pay for the land. While waiting the land will continue to appreciates. Can you imagine the land price in 20 years? In the property development business, it is called using a silk string to tie up a cow which continues to produce milk.
In view of its good future profit growth prospect, I believe it will be good to buy back some Gadang shares at a cheaper price for long term investment.
Koon Yew Yin 官有缘 - My wrong assessment of Gadang
http://koonyewyin.com/2016/11/06/my-wrong-assessment-of-gadang/
