• We maintain our BUY call, forecasts and SOP-based FV of RM5.96 (Exhibit 2) which values 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.

• Gamuda's 9MFY17 results met expectations at 75% and 71% of our full-year forecast and the full-year consensus estimates respectively. Overall, its 9MFY17 net profit only grew 5% YoY as stronger construction profits were partially offset by weaker property profits and a higher effective tax rate.

• Gamuda guided for RM10bil new construction job wins over the next 12 months “from the rollout of several railbased mega projects” which we believe include the LRT3, East Coast Rail Link (ECRL), KL-Singapore high-speed rail (HSR) and MRT3. On the other hand, Gamuda said that it is no longer pursuing the Gemas – Johor Bahru double tracking. Our forecasts conservatively assume Gamuda would secure RM2bil new jobs annually in FY17-19F. Its construction order backlog stands at RM8.2bil at present (Exhibit 3).

• Gamuda is on track to beat its property sales target of RM2.12bil in FY17. For 9MFY17, it already clocked up RM1.4bil sales largely due to strong showing from overseas (particularly, Vietnam and Singapore) which contributed to about 55% of total sales. It said that it is likely to end FY17 with about RM2.5bil sales thanks to the maiden contribution from its newly launched RM6.9bil Gamuda Gardens in Rawang. Gamuda said that the soft launch of 300-400 units of double-storey link houses @ RM750-800K from the 820-acre integrated township project has thus far registered about 70% take-up. Backed by strong performance from Gamuda Gardens, Gamuda is confident that its sales could hit RM3bil in FY18. In FY16, Gamuda achieved RM2.05bil sales, which was a record. As at end-3QFY17, its unbilled sales stood at RM2bil, up from RM1.9bil three months ago. Our forecasts already assume a recovery in Gamuda’s property profits from FY18.

• Gamuda is the best proxy to the booming construction sector in Malaysia given its dominant roles in the MRT (as the project delivery partner (PDP) and tunneling contractor), and potentially in other mega rail-based projects in the pipeline such as the LRT3, ECRL, KLSingapore HSR. It has booked itself a ticket to ride on the next infrastructure/property boom in Penang via its PDP role in Penang Transport Master Plan (PTMP) – a state government’s initiative to improve the road network and public transport system (including LRT and tram) in Penang Island/Seberang Prai, to be funded with reclaimed land and rights to reclaim land.

Source: AmInvest Research - 28 Jun 2017