- Maintain BUY on Gamuda with an unchanged fair value of RM5.25/share, after ascribing a 10% discount to its sum-of-parts (SOP) value. Gamuda delivered a 3QFY14 net profit of RM178mil, taking 9MFY14 earnings to RM513mil, which is within the range of our and street estimates.

- The group declared a second interim DPS (single-tier) of 6 sen, bringing total DPS declared for the financial yearto-date to 12 sen or a yield of ~2.5%.

- 9MFY14 earnings expanded by 37% YoY, buoyed by stronger construction and property contributions.Construction earnings increased by ~1.5x as work on the Klang Valley MRT 1 is running at peak levels. As a result, construction margins improved from 7.7% in 2QFY14 to 9.1% in 3QFY14.

- To-date, overall progress for the underground works and elevated portions have reached 45% and 30%, respectively, as at end-3QFY. The handover to systems specialist could start in four months’ time.

- Positively, some preliminary works on the second MRT line have commenced while waiting for official announcement from the cabinet. The initial batch of awards could be out by 1HFY16 (tenders: 2HFY15).

- Given its track record, we continue to rate the MMCGamuda JV as frontrunners for both the Project Delivery Partner (PDP) and tunnelling contracts for this new line.

- Although there was a slowdown in 3QFY14 (particularly within Iskandar Malaysia), management guided that the group remains on track to achieve its FY14F pre-sales target of RM1.9bil (+9% YoY). 9MFY14 pre-sales achieved was RM1.5bil (unbilled sales of RM1.8bil). Some RM1.5bil could be set aside for new land bank over the next two years.

- Gamuda has fortified its control over KESAS at 70% following an improved offer to buy out PNB’s 20% stake in the highway for RM290mil made earlier this month.

- The move is accretive; we estimate a ~2% lift to Gamuda’s sum-of-parts value (from RM5.25/share to RM5.36/share) and a 3% increase in FY16F-17F FD EPS. We leave our earnings forecast unchanged for now.

- Gamuda remains hopeful of a breakthrough for SPLASH, as the threat of Section 114 of WASIA subsides. Notably, the Selangor government’s consolidation plans is no  longer conditional on reaching simultaneous agreements with all four water entities in the state. We do not discount special dividends if the sale of SPLASH goes through.

Source: AmeSecurities