Cementing Gagasan Nadi’s status

FOUR years ago, construction outfit Gagasan Nadi Cergas Bhd faced turbulent times.

It ended financial year ending Dec 31, 2022 (FY22) with a net loss of RM3.38mil, no thanks to rising raw material prices due to the Russia-Ukraine war which came just as the construction industry was recovering from Covid-19 lockdowns.

Now, though, Gagasan Nadi appears to be able to weather any rise in construction raw material costs, following corporate decisions it made recently.

Late last year, the Grade G7 contractor forked out RM127.3mil to acquire a 69.4% effective equity interest in Konsortium PAE Sepakat Sdn Bhd (KPSSB), a concessionaire that manages student hostels.

This should beef up Gagasan Nadi’s recurring income and stabilise the uneven earnings from its construction and property development sectors.

It also has other concession businesses. It is managing student hostels at the International Islamic University Malaysia, Kuantan and the Universiti Teknikal Malaysia Melaka campus, until 2034 and 2037 respectively.

It also manages a concession for the electricity distribution and district cooling systems for the Datum Jelatek Mall in Kuala Lumpur.

Gagasan Nadi last month announced plans for a bonus warrants issuance.

Proceeds from this exercise, projected at some RM120.5mil if the warrants are fully exercised, are being earmarked as working capital for future property development projects as well as to reduce its debt, eventually bringing down its gross gearing from 0.72 times to 0.59 times assuming full warrants take-up.

Group managing director Datuk Wan Azman Wan Kamal says rising material costs will no longer affect the company as much as it did earlier.

“The state government has a mechanism in place to increase selling prices with the increase in costs. Despite the increasing raw material prices, we have remained profitable.

“This is because we can time our resource needs and also the result of value engineering. We engage with suppliers on procurement timing and quantity,” Wan Azman tells StarBiz 7.

In property development, Gagasan Nadi is involved in the affordable housing sector. It undertakes projects in partnership with Selangor state government agencies such as Permodalan Negeri Selangor Bhd.

Under the Rumah Idaman programme, Gagasan Nadi is developing some 14,000 affordable homes across Kwasa Damansara, City of Elmina and Bandar Rimbayu with a combined gross development value (GDV) of RM3.8bil.

“With land costs typically constituting the largest component of any property development project, our affordable housing projects hold a competitive edge, because under the state government’s incentives for Rumah Idaman, we have been able to procure statutory land designated for affordable homes at reasonable and cost-friendly rates, making these projects highly viable,” Wan Azman says.

“We remain upbeat on demand for affordable housing. We think there is substantial demand for affordable housing in Greater Kuala Lumpur, driven by a thriving national economy and multiple pro-housing government initiatives,” he adds.

He notes that the company’s affordable housing projects not only generate revenue from property development but also ensure a steady pipeline of work for its construction division. This allows the company to profit from both segments.

Gagasan Nadi also has several open market residential and commercial projects in the pipeline in Ulu Yam, Serendah, and Kuala Lumpur with a combined GDV of approximately RM821.6mil.

Wan Azman points out several government policies that ensure demand for property will be resilient.

These include the extension of full stamp duty exemption on the instrument of transfer and loan agreement for first homes priced up to RM500,000 to end-2027.

The company also stands to gain from the Syarikat Jaminan Kredit Perumahan Bhd which guarantees home loans covering more than 100% of the house purchase price for qualified first-time buyers, giving banks greater confidence to approve applications that might otherwise be declined.

The company’s unbilled sales of some RM238mil from its property development segment is mainly from the Idaman Kwasa Damansara R4-1 and Idaman Amani affordable housing projects which will be recognised as revenue over the next three years.

Commenting on its planned transfer of listing to the Main Market from the ACE Market, he says it is a natural progression for the company and reflects its expanding footprint in the affordable housing segment and student hostel facility management.

“In line with the uplift in earnings in FY25, we intend to apply for a transfer of the company’s listing to the Main Market of Bursa Malaysia upon the completion of our audit,” Wan Azman says.

In FY25, its net profit jumped to RM73.8mil from RM5.9mil in the previous year, mainly driven by a substantial net gain on bargain purchase arising from the recent acquisition of the student hostel concession.

The one-off gain was primarily attributable to the purchase consideration being lower than the net asset value of KPSSB at the time of acquisition.