Investment Highlights

• We cut our FY20–22F net profit forecasts by 5–6% each and reduce our FV by 6% to RM2.85 (from RM3.02) based on “sum of parts” (SOP), valuing Gamuda’s construction business at 12x revised forward earnings, in line with our benchmark forward target P/E of 12x for large-cap construction stocks (Exhibit 2). Maintain UNDERWEIGHT.

• Gamuda's 9MFY20 results missed expectations, coming in at only 73% and 63% of our full-year forecast and the fullyear consensus estimates. We believe the main culprit was the 6-week impact from the movement control order (MCO) and conditional MCO during 3Q (Feb–Apr 2020) on Gamuda’s construction activities, property sales and toll collections. The impact has turned out to be much more damaging than expected (and shall continue to wreak havoc until at least in 4Q (May–Jul 2020), as indicated in its current construction activities being at only 70–75% of those of the pre-MCO levels, even though the MCO has now been substantially relaxed). We have reflected this in our earnings downgrade.

• Its 9MFY20 core net profit contracted 25% YoY with weaker earnings across the board, i.e. construction (the downsized MRT2 contract and reduced construction activities during the MCO in 3Q), property (strong sales and firm margins in Vietnam, offset by the MCO impact in Malaysia in 3Q) and concessions (absence of contribution from Splash post-disposal and an 80–90% plunge in toll road traffic during the MCO in 3Q).

• It decided not to declare a second 6 sen dividend during FY20F in order to conserve cash. We therefore cut our FY20F and FY21F dividend forecasts to 6 sen and 9 sen respectively, from 12 sen previously.

• Gamuda recorded only RM1.2bil property sales in 9MFY20, with overseas projects (largely in Vietnam) contributing about 70% of the total, while the balance 30% came from its local township projects comprising largely Gamuda Gardens (near Rawang), Gamuda Cove (near Nilai) and Twentyfive.7 (near Kota Kamuning). It cut its FY20F property sales target by half to RM2bil (from RM4bil previously).

Source: AmInvest Research - 25 Jun 2020