Results

• Gamuda posted 2QFY15 core PATMI of RM182m (+7% YoY, -2% QoQ), brining 1H to RM368m (+10% YoY).

• Share of JV profits (which mainly reflects the MRT PDP and Horizon Hills) totalled RM100m in 1H, flat YoY (-1%).

Deviation

• 1H earnings made up 48% of our full year forecast (49% of consensus), in line with our estimates.

Dividends

• None declared in 2Q. DPS of 6 sen was declared in 1Q.

Highlights

• Slight delay for Line 2. The MRT Line 2 is likely to face a 3-6 month delay in its roll out due to alignment changes. Public display is now expected to take place by mid-2015, tendering in 4Q15 and major contract awards in mid -2016. On a brighter note, land acquisition for Line 2 has begun.

• Longer underground stretch. The alignment changes for Line 2 will incorporate a new station at Bandar Malaysia. This change increases the underground stretch by 1km, which we view positively for the MMC-Gamuda JV as it remains the top contender for the tunnelling works.

• Weak property sales. Property sales in 1H amounted to only RM535m (-45% YoY), largely attributed to weak sales at Horizon Hills due to the slowdown at Iskandar. Management has cut its FY15 sales target by 34% to RM1.2bn.

• Still negotiating for a splash. The recent fallout in the Selangor water restructuring exercise between the Federal and State government will not impact SPLASH. We understand that negotiations between SPLASH and the State government on its pricing are still ongoing.

Risks

• Delay in the award of Line 2 and weak property sales.

Forecasts

• We cut FY15-16 earnings by 10% and 9% respectively given the delays in the roll out of Line 2 and weaker than expected property sales.
• Earnings should peak in FY15 (with minimal growth at 5%) as the civil works for Line 1 will be largely completed. Given the delays for Line 2 and the eventual flow thru effect from weak property sales, we project FY16-17 earnings to decline by 4% and 1% respectively.

Rating

HOLD, TP: RM5.30

While we like Gamuda as the key beneficiary to the MRT play, the delay for Line 2 means that earnings momentum will hit a temporary plateau for FY15-17. It is also likely that property sales could surprise on the downside. As such, we downgrade our rating from Buy to HOLD.

Valuation

• Our SOP based TP is cut from RM5.67 to RM5.30 following our earnings downgrade. This implies FY15-16 P/E of 16.6x and 17.1x, inline with its 3 year mean of 16x.

Source: Hong Leong Investment Bank Research - 27 Mar 2015