Results

• Gamuda reported 4QFY15 results with revenue of RM623m (+5% YoY, +13% QoQ) and earnings of RM154m (-25% YoY, -4% QoQ). This brought full year FY15 earnings to RM682m, down 4% YoY.

Deviation

• FY15 earnings made up 100% of our full year forecast (98% of consensus) which is inline.

Dividends

• None declared for the quarter. Cumulative dividend for FY15 amounts to 12 sen.

Highlights

• Line 2 to take off next year. With MMC-Gamuda JV officially inking the PDP agreement, the MRT Line 2 (RM28bn) is set to take off in mid-2016. The JV is in a polar position to bag the tunnelling works (RM12bn) as it has a cost advantage from Line 1 (e.g. reuse of tunnel boring machines).

• Early days in Penang. Having being appointed as PDP for the Penang Transport Masterplan (PTMP) last month, Gamuda targets to ink the official agreement by year end. It aims to procure regulatory approvals from the Federal Government by end-2016 and work to begin in 2H17. Media sources have reported that Phase 1 of the PTMP is worth RM10bn.

• Property bottomed-out? Property sales of RM1.2bn (-33% YoY) were surprisingly above our target of RM1bn. 4Q witnessed sales improving to RM400m from RM275m in 3Q. Management is targeting RM1.3bn in sales for FY16 vs. our assumption of RM1.1bn. Unbilled sales of RM1.3bn implies a cover ratio of 1.2x.

• Rights issue of warrants. Gamuda has proposed a 1 for 6 rights issue of warrants at an offer price of RM0.25 and indicative exercise price of RM4.65. This will raise RM100m and reduce net gearing from 43% to 41% on a proforma basis. Assuming full exercise of the warrants, share base would increase by 16-20%.

Risks

• Delay in the award of Line 2, failure to obtain regulatory approvals for PTMP and weak property sales.

Forecasts

• No changes as the results were inline.

Rating

BUY, TP: RM5.01

• Gamuda offers investors catalysts in both short term (MRT Line 2 and resolution to the water saga) and long term (PTMP implementation). While weak property sales may be a poser, we are comforted to see bottoming out signs.

Valuation

• Our SOP based TP of RM5.01 implies FY16-17 P/E of 17.4x and 16.9x respectively, lower than its 5 year average (based on 1 year forward earnings) of 19.2x.

Source: Hong Leong Investment Bank Research - 29 Sep 2015