GBGAQRS: Construction Arm’s Strong Performance Drives Earnings Despite Property Setbacks
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
A recent research report highlights a robust performance from the construction segment, which more than tripled its core pre-tax profit (PBT) in the first quarter of financial year 2026 (1QFY26). This strong showing significantly boosted overall core profit, which rose by 82% year-on-year to MYR3.1 million, even though this figure still fell short of both analyst and Street estimates.
Performance Review
The construction division’s core PBT soared to MYR8.9 million in 1QFY26, a substantial increase from MYR2.4 million a year earlier. This impressive growth led to a significant improvement in the segment’s core PBT margin, which expanded to 20% from just 6% in 1QFY25. The positive momentum was primarily attributed to the accelerated progress of key projects such as The Peak, Bandar Enstek School, and E’lsland Lake Haven.
Conversely, the property arm faced a challenging quarter, registering a pre-tax loss of MYR0.2 million in 1QFY26, a reversal from the MYR1.5 million core PBT recorded in the corresponding period of the previous year. The report noted that this weaker-than-expected performance in the property division was the main reason for the overall earnings miss against projections. However, the property project in Johor Bahru, The Peak, may gain further visibility due to its strategic proximity to the Johor Bahru-Singapore Rapid Transit System Link station.
Future Outlook and Catalysts
Despite the short-term earnings miss, the outlook remains positive for the construction entity. It currently holds an outstanding orderbook of MYR295 million and maintains a new job win target of MYR600 million for FY26, which the investment bank deems reasonable given the current market conditions for small to mid-sized contractors. Potential tenders related to the reinstated five Light Rail Transit 3 (LRT3) stations are also considered a possibility, leveraging the company’s track record on similar public sector projects.
The property division’s future earnings are supported by its sold units and unbilled sales totaling MYR192 million. Further contributions are anticipated from upcoming projects like the Serena Gambang project in Pahang and The Peak in Johor.
Key catalysts for future growth include the potential rollout of Phase 1B of the Pan Borneo Highway Sabah, which is expected to benefit the company’s 49%-owned precast business, SEDCO Precast, with an estimated MYR400-500 million in subcontractor-level contracts for precast components. The formation of new property development joint ventures, in addition to existing ones like Gambang Residensi, is also expected to serve as a catalyst.
Investment Recommendation
The investment bank, TA Securities, has maintained its “” recommendation, citing the stock’s attractive valuation, currently trading significantly below its five-year mean Price-to-Earnings (P/E) ratio and the Bursa Malaysia Construction Index’s P/E. While the bank has revised its earnings forecasts for FY26-28F downwards by approximately 14-14.6% due to more conservative recognition for certain property development projects and rolled forward its valuation base year to FY27, it also updated its target price to RM0.25, indicating a 25.0% upside from the last traded price of RM0.20. The primary downside risk identified is the failure to secure new contracts in a timely manner.
