• Gamuda posted flattish 4Q18 core earnings which grew 1.1% yoy and 1.4% qoq. Overall, FY18 core earnings rose 16.8% to a new record of RM818.4m.
• We expect the property segment to drive growth on new launches in the domestic and overseas markets.
• On the flipside, we are cautious on the construction segment amidst downsizing of MRT2 project and delays in the PTMP approval process.
• Maintain BUY with SOP-derived TP of RM4.30. It currently trades at 1.1x PBV which is a 48% discount to 10 years historical mean despite healthy orderbook worth RM6.0bn.

Splendid FY18 earnings

Gamuda posted flattish 4QFY18 core earnings which rose 1.1% and 1.4% yoy and qoq respectively. Overall, FY18 core earnings grew 16.8% to hit a new record of RM818.4m and was in-line with our estimates. This was due to 30% completion of MRT2 underground work and 50% yoy growth in new property sales to RM3.6bn.

Property segment to drive growth

We believe the property segment would be the main growth driver in FY19F owing to new launches in the domestic and overseas markets. For domestic market, we expect launches of new phases/units of existing projects (ie. Gamuda Gardens, twentyfive.7, and Gamuda Cove) to drive sales. Meanwhile, its overseas property unit recently acquired a new landbank in Singapore for S$318.9m. The development earmarked has a potential GDV of S$650m (RM2bn). This could provide some momentum in new property sales from FY20F onwards.

Mildly cautious on construction segment

Management guided that it is in the midst of finalizing on the downsizing proposal for the MRT2. The impact is largely on PDP payment; the project is expected to be converted into a turnkey model while development of several stations would be shelved. Despite these changes, we are not expecting any slowdown in work progress given the completion of land acquisition. For PTMP, the LRT project has been approved in principal by Federal while necessary approvals are expected to be granted by 2020.

Maintain BUY with TP of RM4.30

We retain our BUY call with SOP-derived TP of RM4.30. The stock is currently traded at 1.1x PBV, a 48% discount to 10 years historical mean of 1.6x PBV. Coupled with the current construction orderbook worth RM6bn and unbilled property sales of RM2.3bn, the stock offers deep value. Also, recent deals on SPLASH could reduce its net gearing to 41% from 53%.

Source: BIMB Securities Research - 1 Oct 2018