-  Maintain BUY on Gamuda with an unchanged fair value of RM4.40/share – pegged at a 5% discount to its sum-ofparts (SOP) value. Gamuda’s headline 1H12 net profit of RM302mil (+12% YoY) was in-line with expectations, boosted by higher construction and property earnings.

-  Gamuda recorded its highest ever quarterly profit at RM157mil, with construction pre-tax profit surging 18% YoY in 1HFY13 as the overall progress for the Sg.BulohKajang (SBK) MRT hit 8% (tunnelling: ~8%, PDP: 6%).

-  Construction margins (1HFY13: 11.3%) are however expected to normalise in the coming quarters – as the projected margin of ~15% for the tunnelling works would be averaged down by the 6% fee under the PDP job.

-  We continue to rate Gamuda as one of our top large cap picks for exposure to re-acceleration of contract flows post the 13th general election.

-  More earnings and NAV upside are to come, as our current forecast merely reflects contributions from the SBK Line. A further re-rating could come once clarity emerges for the new MRT lines, whereby the MMC-Gamuda JV is seen once again as a frontrunner due to its existing role in the SBK works. Contracts could be awarded by 2Q 2014.

-  The next MRT line could be a new radial route linking Sg.Buloh to Serdang on the south east of the Klang Valley, passing by the city centre and Sentul in-between. As its length and size are largely similar to that of the SBK line, we expect this new line to cost ~RM20bil.

-  Apart from MRT works, other sizeable new job prospects include Langat 2 (the group was reportedly among five contractors shortlisted for a RM1.2bil water treatment plant package) and the Gemas-JB double tracking project.

-  Gamuda has scaled down its pre-sales forecast for FY13F to RM1.4bil (-8% YoY; 1HFY13 – down 31% YoY at RM600mil), as it only expects RM50mil from its Vietnam projects for the current FY.

-  This is somewhat cushioned by local property new sales, which is projected to rise 17% YoY at RM1.3bil. Horizon Hills was the main driver in 1HFY13, accounting for 60% of total sales – followed by Bandar Botanic at a distant 21%.

-  Gamuda is still waiting for more clarity from the Selangor government’s latest water take-over offer. Excluding any surplus value, it deems the latest offer of RM1.8bil for SPLASH to be ‘acceptable’, translating into RM720mil or RM0.30 on Gamuda’s books at an effective 40% stake.

Source: AmeSecurities