Why am I bullish on Central Global (CGB, 8052)?

Recently, Central Global Corporation (CGB, 8052) received a major piece of news, as they secured a substantial order worth 0.6 billion 16.38 million ringgit, primarily for the construction of an important highway project from Sabah to Brunei. This is not just an ordinary contract, it includes support in all aspects such as equipment, machinery, and labor. For the company, this order is expected to bring in significant profits.

For reference, the scale of this order is equivalent to three times the total revenue of the company in the 2023 fiscal year! With just this contract alone, it is enough to ensure stable profits for the company in the coming years. Moreover, this is just the beginning, as the company has more projects in the pipeline. According to the CEO of the company, Zhou Xianda, they are already preparing for this project, expecting 4 to 6 months for preliminary work, followed by a comprehensive launch over the next 6 months.

What is even more anticipated, Zhou Xianda revealed that this contract is expected to bring double profits. In addition, the company's current total order volume has reached 0.7 billion 60 million ringgit, meaning that even if there are no new orders in the future, the income from these existing projects is sufficient to support the company until 2028!

Actively bidding for new projects.

Not only that, China Global is currently bidding for some larger-scale projects with a total value of 3.7 billion ringgit, mainly in China and Malaysia. These projects involve infrastructure construction, electrical utilities supply, and other multiple areas. If these projects are successfully secured, the company's future revenue growth potential is immeasurable.

Despite the promising outlook, the company also faces some challenges. The company states that the current major difficulties lie in the shortage of funds and talent. Completing these large projects requires a significant amount of financial support, and the company is working hard to raise funds to ensure the smooth progress of the projects. At the same time, they also need more technically skilled professionals to join the company, especially in competitive regions such as Sabah, finding suitable talent is a daunting task.

Cost pressure in the construction industry.

When it comes to the construction industry, the company mentions that fluctuations in raw material prices have a significant impact on the company. Although there are price protection clauses in contracts, changes in market prices can still lead to increased cost pressure, especially in the case of depreciation of the Malaysian ringgit, construction project costs will rise. However, the company believes it can withstand the impact of these external factors through effective management and planning.

Looking ahead, China Global will focus on the progress of projects in Sabah. With equipment and teams ready, they will deeply cultivate the local market and further expand their business. At the same time, the company also intends to gradually transform from an industrial manufacturing business to a construction company, especially in Kuala Lumpur. They are bullish on the government's planned MRT3 project, hoping to participate and drive the company's development in the construction industry.

Summary

China Global is undoubtedly a company worth keeping an eye on. They not only hold multiple substantial orders, ensuring future income growth, but also actively address challenges such as fund and talent shortages. Despite the current cost pressure in the construction industry, the company has prepared for future growth through effective management measures. Whether through accumulating income from existing projects or making breakthroughs in future major projects, China Global has the opportunity to create more value for shareholders.