News

• Acquires Kuala Langat land. Gamuda announced that it has entered into a sale and purchase agreement to acquire a piece of leasehold land measuring 104.1ha in Kuala Langat for RM392.2m (RM35 psf). The acquisition is expected to be completed by 2Q15.

Comments

• An extension to Kota Kemuning. The parcel of land is located 2km from Kota Kemuning, an area where Gamuda has managed to successfully develop into a mature township. Given its close proximity, the said land will be developed as an extension to Kota Kemuning, in what we believe will be a mixed township development. We expect Gamuda to leverage on its success with Kota Kemuning to promote this development.

• Accessibility details. Existing highways connecting the land include KESAS and LKSA. Upon completion of the road from Kota Kemuning to Bandar Saujana Putra, accessibility will be enhanced via the ELITE and SKVE.

• Impact on financials. On a proforma basis, Gamuda’s net gearing is expected to increase from current 29.4% to 36.6%, which we view as still manageable. We are unable to ascertain the earnings impact at this juncture as no GDV or launch details were disclosed.

Risks

• Execution risk, rising material prices, project implementation delays, property sector slowdown and political risks.

Forecasts

• Unchanged. Our earnings do not factor the potential development profits from this new landbank. Given the long gestation time required for township developments, we do not expect this landbank to impact our FY15-16 forecasts.

Rating

BUY TP: RM5.74

• Gamuda is our top pick in the construction space as it is the best proxy to the MRT play. We expect interest in the stock to pick up in tandem with rising news flow for the MRT Line 2. Resolution of the Selangor water saga will be an added catalyst.

Valuation

• TP maintained at RM5.74 based on SOP which implies FY15-16 P/E of 16.5x and 14.9x , respectively . This is inline with its 3 year mean P/E (based on 1 year forward earnings) of 16x

Source: Hong Leong Investment Bank Research - 2 Dec 2014