Results

9MFY14 core PATAMI, grew by 10% to RM513.5m (22.4 sen/share), making up 78.8% and 74.0% of ours and consensus estimates respectively.

Deviations

Due to stronger construction and property profits.

Dividends

Net dividend of 6 sen/share declared, bringing full year payout to 12 sen/share vs. HLIB’s forecast of 11.5 sen/share. Dividends usually declared in 1Q and 3Q. Exdate on 10 Jul-14, payment on 23 Jul-14.

Highlights

Below are the salient points from the yesterday’s briefing.

Result review… 3QFY14 earnings was strong due to higher contribution from construction and property. QoQ, construction revenue surged by 28% due to higher work progress from KVMRT1. The KVMRT progress on the PDP scope and underground works stood at 30% and 45% respectively. Outstanding construction order book stood at RM2.3bn, translating to ~1.6x FY13’s construction revenue.

Water Progress… Federal was heavily involved in final stages of resolution with threat of Section 114 invocation subsides after Puncak Niaga accepted offer. Several possible solutions have been considered and management expect satisfactory resolution for Splash to emerge. To recap, SPLASH contributes RM0.41 per share to our SOP valuation.

KVMRT2 approved… The cabinet has approved Line 2 of the KVMRT project. Some preliminary works have commenced. Call tender expects in 2H15 and earlier awards by 1H16.

Property sales slowdown…. Property market continues to slowdown, especially in Iskandar with new property sales dropped 20% yoy. 9MFY14 new property sales of RM1.5bn have achieved 79% of RM1.9bn FY14 sales target. Overall, unbilled property sales remained unchanged at RM1.8bn, translating to ~2.5x FY13’s property sales.

Foreign shareholding… As of end May, foreign shareholding has reduced further to 29% vs. 38% in Jan 14.

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

FY14 and FY15 earnings raised by 8% and 7% respectively after take into account higher margin assumption on construction business.

Rating

HOLD

We believe that the uncertainty revolving the Selangor water restructuring exercise will dampen Gamuda’s share price. Although positives will come from the next line of the KVMRT project, profit contribution from it will only sustain earnings instead of delivering earnings growth. Given that there is less than 10% total upside from our TP, we are maintaining our HOLD call on the company.

Valuation

We raised our TP from RM4.62 to RM5.01 based on SOP valuation (see Figure #3) post earnings upgrade and factored in higher equity stake in Kesas (from 50% to 70% equity interest).

Source:Hong Leong Investment Bank Research - 27 Jun 2014