- We maintain our BUY call on Gamuda with a lower fair value of RM5.75/share (previously: RM5.80/share), as we roll forward its valuation base to FY16F. For its FY15 results (ending 31 July), Gamuda posted a 4% YoY dip in net profit. This was in line with our full-year forecast.

- The decline was largely due to a weaker construction earnings cycle, which was partly mitigated by stronger earnings from its expressways division following the first full year of consolidation for the Kesas concession.

- Construction earnings fell 14% YoY to RM222mil as the pace of civil works for the MRT Line 1 (MRT 1) began to taper off. Progress on the underground works and Project Delivery Partner (PDP) scope for MRT 1 has reached 75% and 62% respectively – well within its timeline. This, in turn, could set the stage for the imminent roll-out of the MRT Line 2 (MRT 2), which is to cost an initial RM28bil.

- Having signed the agreement as the PDP, the MMCGamuda JV is a strong contender for the tunneling works under MRT 2. Tenders for the civil works (including the tunneling package) could be called by next month, with major awards set to be dished out from mid-2016.

- Likewise, the Gamuda-led SRS consortium is set to sign a PDP agreement for the Penang Transport Master Plan (PTMP) by March/April 2016. Other big-ticket jobs that are being eyed include the Pan Borneo Highway and Gemas- JB double tracking project.

- New property sales fell by a third YoY to RM1.2bil in FY15, in tandem with weaker sentiments. But, management expects the local property market to have bottomed out and has set a higher sales target for FY16F (+10% to RM1.3bil), accelerating further to RM1.6bil in FY17F (+19%).

- The stronger pre-sales target will be supported by four new launches with a combined GDV of RM3.7bil (High Park Suites – Kelana Jaya; Chapel Street – Melbourne; Bukit Bentayan – Sabah; Toa Payoh – Singapore). Overseas, Gamuda’s Vietnam projects seem to have turned a corner where it registered a record RM530mil in sales for FY15F (~44% of total sales).

- We have included the PDP contract for MRT 2 in our earnings model starting from FY17F. Further NAV upside of RM1.29/share (FV: + 20% to RM6.90/share) could come from the MRT 2 tunneling works and PDP role for the PTMP. Foreign shareholding level is at 24% as at end- July, a post 1997-Asian financial crises low.

- The monetisation of its water assets is back on the cards where negotiations with the Selangor government have resumed in recent weeks.

Source: AmeSecurities Research - 29 Sep 2015