Results

• Gamuda reported 1QFY15 core PATMI of RM186m (+12% YoY, -7% QoQ). Share of JV profits (which mainly reflects the MRT PDP and property development from Horizon Hills and Kota Kemuning) came in at RM50m (+11% YoY, -6% QoQ).

Deviation

• 1Q earnings made up 23% of our full year forecast (25% of consensus), broadly in line with our estimates.

Dividends

• A first interim dividend of 6 sen was declared.

Highlights

• On track. The MRT SBK line has achieved 58% completion for the tunnelling segment and 42% for the PDP scope. Track laying and system works have commenced for some stretches, on track for partial completion by mid-2016 and full completion by mid-2017.

• Awaiting Line 2. The MMC-Gamuda JV is expected to ink the PDP terms for the SSP Line (RM25bn) by mid -2015. Tenders will be called in 3Q15, awards in 1Q16 with target completion in 2021. In addition to the JV returning for the PDP role, we also expect it to be the frontrunner for the RM9bn tunnelling works. Most of its tunnel boring machines (TBMs) used for the SBK line are undergoing refurbishment to be used for the upcoming SSP line, providing it a cost advantage during the Swiss Challenge.

• Penang transport masterplan. Gamuda will be submitting its PDP proposal for the Penang transport masterplan (RM27bn). Details on the massiv e project remain sketchy at this juncture but we reckon that Gamuda has an edge to secure the PDP role given its success with the MRT.

• Property sales hit. 1Q property sales only amounted to RM240m (-58% YoY), hit largely by decline in Horizon Hills due to the weak Iskandar market. Gamuda is in the midst of reviewing its sales target for FY15 with a downside bias.

Risks

• Delay in the award of the SSP line which is much needed to fill the earnings gap once the SBK line is completed.
• Weak property sales, particularly in Iskandar.

Forecasts

• We adjust FY14 earnings by -4% as we update our model following the release of its annual report. We also cut FY15 earnings by -9% as we impute slower sales for Horizon Hills.

Rating

BUY, TP: RM5.67

• We like Gamuda as the primary beneficiary to the MRT play. Key catalysts are (i) achieving critical milestones for the SSP line; (ii) Penang transport masterplan gaining news flow; and (iii) resolution to the Selangor water saga.

Valuation

• Our SOP based TP is reduced from RM5.74 to RM5.67 following our earnings adjustment. This implies FY15 -16 P/E of 17.3x and 16.2x vs its 5 year mean of 18x. Maintain Buy as it is our big cap top pick in the sector.

Source: Hong Leong Investment Bank Research - 17 Dec 2014