Gamuda Bhd
(July 19, RM3.37)
Maintain hold at RM3.36 with target price of RM3.50: The Edge Financial Daily has reported that Gamuda's wholly owned property development arm, Gamuda Land, has acquired a plot of freehold land in Jalan Pudu for a mixed commercial development with an estimated gross development value (GDV) of RM600 million. A sale and purchase agreement was entered into last month for the acquisition of the 2.94-acre parcel of commercial land located at the intersection of Jalan Pudu and Jalan Robertson for RM105 million or RM820 per sq ft from Wearne Brothers Properties Pte Ltd.

Known for their development of sprawling suburban townships, the project is Gamuda's first mixed commercial development in Malaysia. The plot of land is located in the heart of Kuala Lumpur within walking distance of the bustling Bukit Bintang area and the Plaza Rakyat LRT station. The development is expected to take three years, with the initial launch tentatively scheduled for early FY2012. Assuming a pre-tax margin of 20% and a sales period corresponding to the development period, the project should contribute about RM90 million in after-tax earnings over the development period. We expect our earnings estimate for FY2012 to be boosted by just 0.5% as the project will still be in the start-up stage. Therefore, we leave earnings estimates unchanged for now.

Although the construction division remains the biggest earnings contributor, Gamuda's property division will see the strongest pre-tax earnings growth over the next two years at CAGR of 67%. This is underpinned by its large scale ventures in Vietnam, which will begin contribution in FY2011. Recall that its first Vietnam property project, Yenso Park in Hanoi, is slated for a soft launch in October 2010. Its mixed development in Tan Thang, Ho Chin Minh City, also known as Celadon City, is also scheduled for launch in August 2010. With a combined GDV of RM16 billion, these projects are expected to overshadow all the Malaysian property projects combined.

We maintain our hold call as we believe Gamuda is fairly valued at current valuations. Our target price is unchanged at RM3.50 based on FY2011 EPS pegged to a historical average PER of 20 times. ? ECM Libra Investment Research, July 19

This article appeared in The Edge Financial Daily, July 20, 2010.