Results

• Gamuda posted 3QFY15 core PATMI of RM160m (-10% YoY, -12% QoQ), brining 9M to RM528m (+3% YoY).

• Share of JV profits (which mainly reflects the MRT PDP and Horizon Hills) totalled RM144m in 9M, down -8% YoY.

Deviation

• 9M earnings made up 71% of our full year forecast (72% of consensus), which is below expectations. This was mainly due to tapering contributions from the MRT which has hit 68% completion for the underground portion (tunnelling completed) and 55% for the PDP scope.

Dividends

• A second interim dividend of 6 sen was declared bringing cumulative 9M amount to 12 sen.

Highlights

• Line 2 reaffirmed in 11MP. The MRT Line 2 was reaffirmed during the 11MP with a higher allocation of RM28bn vs. RM25bn previously. This comprises RM12bn for the underground portion and RM16bn for the elevated stretch. Prequalification is ongoing with tenders expected to be called in 4Q15 and contract awards from mid-2016.

• Finalist for PTMP. Gamuda and a Chinese entity are the finalists that have been shortlisted as the PDP for the RM27bn Penang Transport Master Plan (PTMP). Indications are that the results could be out within the next 1 to 3 months. The PDP will be required to obtain the necessary approvals from the Federal Government. As such, we think Gamuda has an edge given its position as a local contractor with local knowledge, having dealt with the Federal Government on past major projects.

• Weak property sales. 9M property sales amounted to RM810m (-46% YoY). To counter the effects of the weak domestic property market, Gamuda is embarking on fast turnaround overseas developments in Melbourne (GDV: RM400m) and Singapore (GDV: RM650m with 50% stake).

Risks

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

Forecasts

• Given the lower than expected results, we cut FY15-17 earnings by 8%, 7% and 3% respectively as we incorporate the faster than expected tapering contribution from MRT Line 1.

Rating

HOLD, TP: RM5.01

• While we like Gamuda as the key beneficiary to the MRT play, earnings are expected to plateau from now until FY17 due to the timing gap between the completion of Line 1 and the commencement of Line 2. While securing the PDP role for the PTMP is a positive, earnings contribution is unlikely until FY17 at earliest.

Valuation

• Our SOP based TP is cut from RM5.30 to RM5.01 following our earnings downgrade. This implies FY15-16 P/E of 17x, roughly inline with its 3 year mean of 16x.

Source: Hong Leong Investment Bank Research - 24 Jun 2015