News

• Wins bid for Toa Payoh land. The JV between Gamuda (50%), Maxdin Pte Ltd (30%) and Evia Real Estate (20%) has won the bid from the Housing Development Board of Singapore to acquire a piece of leasehold land (99 years) measuring 12,155 sq meters (130,831 sq ft) located in Toa Payoh, Singapore for a price of SGD345.9m (RM968.4m based on MYR/SGD of 2.8).

Comments

• No surprise, as per guidance. This news is inline with management’s guidance during its results briefing earlier this week. The acquisition price works out to be SGD2,644 psf (RM7,402 psf). Management indicated that its bid was: (i) only 1% higher than the 2nd highest bidder and; (ii) the top 4 bidders had a price variance of less than 4% amongst each other. This provides us some reassurance that Gamuda did not overpay for the land.

• Maiden Singapore venture. Toa Payoh is located in the urban area of Singapore and is served by 3 MRT lines. Despite being a mature residential area, the supply of private residential property in Toa Payoh is scarce as it mainly comprises of HDB homes (affordable housing). Management believes that it can fill this gap of private residences in Toa Payoh and intends to develop condos with an estimated GDV of SGD650m (RM1.8bn).

• Impact on financials. We estimate that the acquisition would increase Gamuda’s proforma net gearing from 36% to 44%. To assess the potential earnings contribution from this development, we have assumed the following: (i) 50% stake in GDV; (ii) SGD/MYR of 2.8; (iii) PBT margin of 11% which is the mid-point of management’s guided range at 10-12%; (iv) 3 year development horizon and; (v) effective tax rate of 17%, inline with Singapore’s corporate tax rate. Based on this, the development would enhance Gamuda’s FY16-17 earnings by RM28m p.a. or an incremental 4%.

Risks

• Delays in the roll out of MRT Line 2 and weak property sales.

Forecasts

• Unchanged pending more clarity on the launch schedule of the Toa Payoh development.

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. The slowing property sales that Gamuda is experiencing do not help either.

Valuation

• TP maintained at RM5.01 based on SOP which implies FY15-16 P/E of 17x, inline with its 3 year mean of 16x.

Source: Hong Leong Investment Bank Research - 26 Jun 2015