Investment Highlights

• We maintain our BUY call, and keep relatively unchanged our forecasts and SOP-based FV of RM5.95 (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 FY17 core net profit of RM700.5mil (excluding RM98.5mil impairment loss on its SMART tunnel concession) met consensus estimates but beat our forecast by 6%. The key variance against our forecast came from stronger-thanexpected property profits from Vietnam.

• Overall, its FY17 core net profit grew 12% YoY driven by improved performance from all key divisions, namely, construction, property and concession.

• Gamuda reiterated its guidance for RM10bil new construction job wins over the next 12 months “from the rollout of several rail-based mega projects” which we believe include the East Coast Rail Link (ECRL), KL-Singapore high-speed rail (HSR) and MRT3. Gamuda downplays its chances of winning a LRT3 viaduct package as the package it is eyeing, i.e. the one with an underground section, may be subject to changes – from a “deep tunnel” design to a “shallow tunnel” or entirely elevated one. However, it is bullish on ECRL. It gathered that the main contractor CCCC has subdivided the project into “8- 9 packages” and awarded all but one to its subsidiaries. Gamuda is eyeing the last remaining package.

• Our forecasts assume Gamuda will secure RM2bil new jobs annually in FY18-20F. Its construction order backlog stands at RM7.8bil at present (Exhibit 3).

• Gamuda ended FY17 with total property sales of RM2.4bil, exceeding its target of RM2.1bil. The strong performance was driven largely by overseas projects (Vietnam, Singapore and Australia) which contributed 57% of total sales. Vietnam alone raked in RM1.1bil or 45% of total sales.

• It revised up its FY18F sales target to RM3.5bil from RM3bil it guided three months ago. Apart from sustained strong performance from overseas projects (particularly Vietnam), Gamuda also expects good take-up for launches from its new RM10bil township project, Gamuda Gardens, in Rawang. The maiden launch of 230 units of double-storey link houses @ RM750-800K from the 820-acre integrated township project has been a complete sellout due to “the right product, price and location”. As at end-4QFY17, its unbilled sales stood at RM2bil, unchanged from three months ago.

• Gamuda is the best proxy to the booming construction sector in Malaysia given its dominant roles in the MRT project (as the project delivery partner and tunnelling contractor), and potentially in other mega rail-based projects in the pipeline such as ECRL and KL-Singapore HSR.

Source: AmInvest Research - 29 Sept 2017