Results

1QFY14 core PATAMI, grew by 14% to RM165.5m (7.25 sen/share), making up 25.4% and 24.2% of ours and consensus estimates respectively.

Deviations

Largely in line.

Dividends

6 sen/share declared, matching corresponding period’s payout. Ex-date on 9 Jan-14, payment on 28 Jan-14.

Highlights

Results review… 1QFY14 revenue grew by 7% YoY to RM486.1m, but operating profit declined by 5% to RM102.7m. Despite that, core PATAMI grew by 14% to RM165.5m due to stronger contribution by the JVs for the MRT project and Horizon Hill developments. Gamuda has adopted FRS11 whereby JVs are equity accounted. Hence, QoQ comparison is no longer meaningful.

MRT accelerates… The overall “financial” completion of the MRT project accelerated during the quarter with the PDP scope and underground works at 17% (+5%) and 24% (+6%) completed respectively. 7 TBMs have tunnelled 4.5km (19km total length). Still waiting for Cabinet approval, to proceed with Line 2 (Sungai Buloh to Serdang). MRT Line 2 is expected to cost RM25bn.

Dimmer prospects for other jobs… The RM8bn Gemas- Johor Bahru EDTP has now been postponed to 2015, while the Langat 2 water treatment plant worth about RM1.2bn- 1.5bn will only proceed after the water restructuring has been concluded. Overall, Gamuda has an outstanding construction order book of RM9.3bn, which includes the remaining PDP contract role of circa RM6.1bn.

Horizon stars… Achieved new property sales of RM575m in 1Q, whereby Horizon Hills made up >RM300m. For FY14, Gamuda has targeted new sales of RM1.9bn. Gamuda is eyeing for 3 landbank in Iskandar Johor, Klang Valley and East Malaysia. As of 1QFY14, unbilled property sales stood at RM1.7bn.

KESAS update… The KESAS offer for the remaining 70% stake closes today with indication that some of the shareholders may accept its offer. This will be immediately earnings accretive for Gamuda and a share price catalyst.

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

Unchanged.

Rating

HOLD

Although prospects for Gamuda remains bright from the rollout of the next MRT lines, we believe that much of the positive catalysts have already been factored in its share price. Given that the current price has exceeded our TP slightly, we maintain our HOLD call.

Valuation

Maintain TP of RM4.51 based on SOP valuation (see Figure #3). However, if the KESAS deal goes through our new TP for Gamuda is RM4.90.

Source: Hong Leong Investment Bank Research- 18 Dec 2013