GDB Holdings Bhd is the winner of Highest ROE over Three Years for the construction sector in The Edge Malaysia Centurion Club Corporate Awards 2023 for the second year in a row, despite its three-year weighted ROE dropping to 15.6% for the FY2020-FY2022 evaluation period, as opposed to the 21.3% it achieved for the FY2019-FY2021 period that won it the same award last year.

The lower three-year FY2020-FY2022 weighted ROE was due to a sharp decline in FY2022 ROE to 11.1% from the strong 20.2% it achieved for both FY2020 and FY2021 at the height of the Covid-19 pandemic.

Besides the pandemic, the political instability over the last three years had also resulted in big infrastructure projects being either scrapped or postponed indefinitely, which greatly impacted the construction sector.

Nonetheless, GDB managed to make a net profit of RM25.7 million in FY2020, down 11.7% from the RM29.1 million it made in FY2019. Its bottom line then rose 11.3% to RM28.6 million in FY2021, before dropping 39.9% to RM17.2 million in FY2022, despite revenue coming in 20% higher at RM510.1 million compared with RM424.9 million in FY2021.

The drop in FY2022 net profit was due to a much higher cost of sales, which offset 94% of its revenue, compared with 88.9% in FY2021. The higher cost of sales resulted in GDB’s profit before tax (PBT) dropping 41.6% to RM21.8 million from RM37.31 million.

“Even as all economic sectors are gearing towards resuming normalcy in 2022 following the country’s transition from the Covid-19 pandemic phase to the endemic phase, recovery in the construction sector remained at a sedentary pace due to persistent complications from the supply chain disruption. Challenges included rising costs of key building materials such as steel and cement, and the mismatch in labour demand and supply after the reopening of international borders,” GDB chairman Tan Sri Zaini Omar said in the group’s annual report for 2022 released in April this year.

Still, GDB’s retained earnings grew 12.2% year on year to RM97.8 million in FY2022, which increased its total equity to RM160.92 million as at Dec 31, 2022, from RM151.24 million in the preceding financial year.

During the year, GDB successfully completed two projects, namely the Hyatt Centric Hotel in Kota Kinabalu and Perla Ara Sentral in Ara Damansara. Its order book also increased by RM247 million upon securing a design-and-build contract to construct a logistics hub in Bandar Bukit Raja.

In announcing its financial results for the quarter and year ended Dec 31, 2022, GDB said it had an outstanding order book worth RM1.28 billion.

However, following the termination of its contract to build the 8 Conlay mixed development for project developer KSK Land Sdn Bhd in April this year, GDB’s outstanding order book dropped to just RM247.3 million as of June 30, according to the group’s August announcement of its second-quarter results for FY2023.

GDB has been embroiled in a dispute with KSK Land’s subsidiary Damai City Sdn Bhd over the contract since 2022. The dispute revolves around the alleged non-payment for work done by GDB’s unit, Grand Dynamic Builders Sdn Bhd. In May this year, Grand Dynamic Builders filed a lawsuit against KSK to recover about RM102.1 million, which it contends is owed for services rendered on the 8 Conlay project.

In August, the group also updated that it had submitted tenders for jobs worth a total of RM2.1 billion so far and that it would be bidding for an additional RM3.4 billion worth of construction jobs before the end of 2023. These tenders include projects across various building types, such as residential, mixed-use, hospital and warehouse.

In the meantime, the group’s unaudited bottom line for the first half of FY2023 ended June 30 fell to RM2 million from RM11.2 million in the corresponding first half of FY2022, as revenue halved to RM157.6 million from RM316.5 million amid the 8 Conlay issue as well as higher costs.

In its Annual Report 2022, GDB said recent approvals for the hiring of 350,000 foreign workers will help support the expansion of the construction industry in Malaysia, which is expected to grow 4.7% on the back of higher private investments — particularly for industrial, commercial and residential buildings.

But all things considered, the group is expecting a challenging FY2023.