- We maintain our BUY call on Gamuda with a higher fair value of RM5.40/share (previously: RM5.25/share) as we roll-forward our valuation base to FY15F. Our fair value upgrade also takes into account the acquisition of a further 20% stake in KESAS from PNB (completed in June).

- Core FY14 net profit rose 9% YoY on higher construction and property earnings. Excluding the impact from FRS11, core construction earnings rose 6% YoY although margins were a tad lower at 8.7% in FY14 (FY13: 9.9%).

- The MMC-Gamuda JV continues to deliver for the KVMRT line 1; work progress has reached 52% and 35% for the tunneling and PDP components, respectively. The entire tunneling works should be completed by the second quarter of next year, while system handover for the elevated portion should commence in a months’ time.

- We understand that the roll-out for KVMRT2 has been set back by a couple of months following an additional review of the line by a government-appointed consultant. But, management maintained its view that the new line could be formalised by year-end with major awards to come out by mid-2016 onwards (tenders: late-2015).

- On the other hand, core property earnings surged 19% YoY largely on the strong pre-sales trajectory over the last two FYs and stable margins (unbilled sales: RM1.7bil). Key contributors for the quarter were Horizon Hills (44%), Bandar Botanic (28%), and The Robertson Suites (11%).

- New property sales slipped 55% YoY to RM300mil in 4Q, nudging total new sales slightly upwards by 3% to RM1.8bil (FY13: + 14%). Reflecting its cautious outlook for FY15, management has revised downwards its FY15F sales target by 8% to RM1.8bil – implying flattish trends YoY (+2%).

- On the flipside, we draw comfort that Gamuda has been proactively reshaping its landbank by acquiring strategic township land during the current lull – the most recent being the Mukim Tg.12 land for RM784mil (~RM12psf). This new project (GDV: ~RM19bil) could lift its overall GDV to c.RM45bil. No change in our estimated for now as the development is only due for launching in FY18.

- Remain invested in Gamuda. More landbanking moves are possible within a year; ~RM1.3bil has been set aside in search of more land, including those in Penang. Apart from the KVMRT2 project, Gamuda’s track record as the PDP for KVMRT1 also puts it in good stead to bid for a similar role under the Penang government’s transport master plan. The PDP contract could be awarded by mid-2015.

- The recent change in Selangor’s MB could trigger renewed hopes of resolving the protracted water impasse for SPLASH as the risk of Section 114 being invocated subsides.

Source: AmeSecurities