Results

1HFY13 core PATAMI jumped by 20% to RM302.3m (14.5 sen/share) to make up 54% and 50% of ours and consensus forecasts respectively.

Deviations

Due to stronger earnings from the construction and property division.

Dividends

None. Dividends usually declared in 1Q and 3Q. Highlights

Results review.... 2Q core earnings (after adjusting for land disposal gain of RM16.8m in 2QFY12) grew by 31% and 8% YoY and QoQ respectively, to the highest quarterly profit achieved by Gamuda. This was driven by strong performance in all divisions. Quarterly revenue was up by 14% and 13% YoY and QoQ respectively. For 1HFY13, revenue grew by 17% while the strong earnings were mainly driven by the construction and property division.

Rail progress... The MRT project for the PDP role and tunnelling portion has progressed by 6% and 8% respectively. Management believes that the next MRT line will be awarded by 2HCY14. This is positive for Gamuda as it indicates continuity of order book replenishment for the company. Overall, outstanding construction order book of RM4.2bn, translating to 2.2x FY12’s construction revenue.

Hot Iskandar, cold elsewhere... Achieved new property sales of RM270m in 2Q mainly from Horizon Hills, bringing YTD new sales to RM600m. Management has lowered their new property sales target to RM1.4bn due to poor sales in Vietnam. Overall, unbilled property sales were unchanged at RM1.2bn, translating to 1.1x FY12’s property revenue.

Foreigners are back... Foreign shareholding has surged by 6% to 43% over the Jan-Feb period. The previous high was 64-65% in 2007.

Risks

Execution risk; Failure in securing new projects; Political and regulatory risk; Rising raw material prices; Unexpected downturn in the construction and property cycle; Sharp depreciation of the VND.

Forecasts

Although we are expecting sequential stronger earnings, we prefer to remain conservative due to the technically challenging tunnelling works. Hence, we maintain our forecasts.

Rating

HOLD Downgrade to HOLD as share price has appreciated close to our TP.

• Positives: (1) Catalyst from next phase of the MRT project and Gemas-Johor EDTP project; (2) Strategic land banking exercise; (3) Privatisation of highway assets; (4) Rebound in Vietnam property market.
• Negative: (1) Risk aversion appetite from investors due to looming polls.

Valuation

• TP unchanged at RM4.28 based on SOP valuation

Source: Hong Leong Investment Bank Research - 29 Mar 2013