Investment Highlights

• We maintain our BUY call and forecasts, but raise our SOP-based FV by 1.5% to RM5.96 (from RM5.87) (Exhibit 1), as we add back RM250mil to our property RNAV estimates. We value Gamuda's construction business at 16x CY18 net profit, in line with our benchmark 1-year forward P/E of 14-16x for large-cap construction stocks.

• Recall, we deducted RM250mil from our property RNAV estimates for Gamuda following a report in TheEdgeProperty.com that Gamuda was returning Parcel B of Gamuda City (also known as Yenso Park) in Hanoi to the Vietnamese government, as it had become not viable due to US$100mil (RM432mil) relocation cost for the existing occupiers.
• Parcel B, measuring 500 acres including several lakes with a combined area of 300 acres, was originally earmarked as the second commercial precinct of the 1,200-acre integrated property project (while Parcel A is the first commercial precinct).
• Contrary to our earlier belief, we found out from Gamuda that the 200-acre net land area of Parcel B (500 acres total minus 300 acres of lakes) is not carried in Gamuda's books. It does not form part of Gamuda's 400 acres of unsold land in Gamuda City and does not contribute to Gamuda City's outstanding GDV of RM10bil at present.

• We understand that Parcel B is governed by a separate land swap agreement with the Vietnamese government, which will now not proceed.

• We previously assumed Parcel B formed part of Gamuda City's unsold land and outstanding GDV, and as such we deducted RM250mil to reflect the loss of potential NPV via development, following the returning of the 200-acre land. We now reverse the adjustment accordingly.

• Gamuda remains the best proxy to the booming construction sector in Malaysia given its dominant role in the MRT (as the project delivery partner (PDP) and tunneling contractor) and its involvement in Pan Borneo Sarawak Highway. Its earnings visibility is strongly backed by an outstanding construction order book of RM8.3bil. It has booked itself a ticket to ride on the next infrastructure/property boom in Penang via its PDP role in PTMP – an initiative by the Penang state government to improve the road network and public transport system in Penang Island/Seberang Prai, to be funded with reclaimed land and rights to reclaim land.

Source: AmInvest Research - 23 May 2017