Results

• Gamuda reported 1QFY16 results with revenue of RM513m (-10% YoY, -18% QoQ) and earnings of RM161m (-13% YoY, +5% QoQ).

Deviation

• 1Q earnings made up 24% of our full year forecast and 25% of consensus.

Dividends

• An interim dividend of 6 sen was declared (unchanged YoY).

Highlights

• Awaiting MRT2 take off next year. With tenders for the MRT2 (RM28bn) recently called, initial awards are expected sometime in April-May 2016. Apart from retaining its PDP role, the MMC-Gamuda JV is also in a polar position to bag the tunnelling works (RM12bn) given its strong execution of MRT1 and sunk cost for the tunnel boring machines.

• Things get moving in Penang. Yesterday, the Penang executive council approved the rail and highway schemes proposed under the Penang Transport Masterplan (PTMP) by its PDP (Gamuda has 60% stake). Timeline wise, the PDP agreement is targeted to be inked in Feb-Mar 2016, approval submissions to the relevant authorities in 1Q16 and if all goes well, work should begin in 2018.

• Eyeing on several sizable jobs. Management alluded that it will also be bidding for jobs such as the LRT3 (RM9bn), Sarawak Pan Borneo Highway (RM16bn) and Southern Double Track (RM8bn). Although it will not be taking a lead/ PDP role in these jobs, Gamuda is still keen to bid for them given the sheer size of the packages and work scope that is within its scope of expertise.

• Vietnamese boost for property. 1Q property sales stood at RM270m (+12% YoY) with Vietnam making up 60% of it. Management expects overseas projects (Vietnam, Austral ia and Singapore) to make up for the domestic weakness.

Risks

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

Forecasts

• While 1Q results appear inline, we cut FY16 earnings by 15% as we account for the tapering of MRT1 works in subsequent quarters. We also trim FY17 earnings by 5% after adjusting our timeline for the roll out of MRT2.

Rating

• Maintain BUY, TP: RM4.85
• Gamuda offers investors catalysts in both short term (MRT2 and sale of SPLASH) and long term (PTMP implementation). Downside should be limited as foreign shareholding is at a low of 22% (end Oct), even below the Global Financial Crisis levels of 28-29%.

Valuation

• Following our earnings cut, our SOP based TP is reduced from RM5.01 to RM4.85. This implies FY16-17 P/E of 20.3x and 17.7x respectively, slightly higher than its 5 year mean of 16x but below its long term average of 23x.

Source: Hong Leong Investment Bank Research - 17 Dec 2015