Results

• Gamuda reported 3QFY16 results with revenue of RM467m (-16% YoY, -11% QoQ) and earnings of RM153m (-5% YoY, -5% QoQ). This brings cumulative 9M earnings to RM474m, down -10% YoY.

• Deviation

• 9M earnings made up 82% of our full year forecast (75% of consensus) which we deem inline. Earnings in 4Q could continue to slide downwards QoQ due to timing differences between the completion of MRT1 and the commencement of MRT2.

Dividends

• An interim dividend of 6 sen was declared, bringing the cumulative sum to 12 sen (unchanged YoY).

Highlights

• MRT2 kicks off. Following the award of the MRT2 underground portion (RM15.5bn) in March, Gamuda’s orderbook now stands at a record RM8.2bn, implying a superior cover ratio of 8.9x on FY15 construction revenue. This sum excludes the PDP scope which is estimated at RM15bn (50% is Gamuda’s share). Thus far, 4 elevated viaduct packages have been awarded with the remaining 6 to be rolled out over the next 6-9 months. MRT2 aside, Gamuda is also eyeing on large scale jobs such as the Pan Borneo, LRT3 and Southern Double Track.

• Delays in Penang. For the Penang Transport Masterplan (PTMP), Gamuda has submitted its proposed Railway Scheme to SPAD while environmental and social impact studies are currently ongoing. Management indicates that the initial timeline of 1H17 to procure all relevant approvals is unlikely to be met. It now guides for this to be obtained by end-2017 and contract awards by mid-2018. We reckon that the PTMP is still in its early days and have not imputed any contribution to our earnings forecast.

• Strong sales in Singapore. 9M property sales totalled RM575m (-29% YoY) with unbilled sales at RM1bn (1.2x cover ratio). Management expects 4Q to record a strong pickup, driven by encouraging take up rates for its GEM Residence in Toa Payoh, Singapore (GDV: RM2bn, 50% stake). During its recent launch, the development recorded bookings of RM500m.

Risks

• Weak property sales could partially offset the expected recovery in construction earnings.

Forecasts

• Unchanged as the results were inline.

Rating

• Maintain BUY, TP: RM5.65

• Looking past this temporary earnings dip, driven by the MRT2, Gamuda is poised to resume its earnings upcycle in FY17 and potentially hitting a record high in FY18. Foreign shareholding of 22% (end May) are at near lows.

Valuation

• Our unchanged SOP based TP of RM5.65 implies FY16 P/E of 23.5x but a more palatable 19.5x for FY17 once its earnings momentum regains traction.

Source: Hong Leong Investment Bank Research - 30 Jun 2016