Results

• Gamuda reported 4QFY16 results with revenue of RM614m (-1% YoY, +31% QoQ) and earnings of RM152m (-1% YoY, -0.4% QoQ). Full year FY16 earnings amounted to RM626m, declining -8% YoY.

Deviation

• Full year earnings were 8% above our forecast but within consensus. The stronger than expected results stemmed from a sudden QoQ surge in 4Q construction PBT by +86%. This was due to certain works that were not recognised in prior quarters but only finalised towards its year end.

Dividends

• None declared. Prior interim dividends amounted to 12 sen (unchanged YoY).

Highlights

• MRT updates. MRT1 is 90-92% complete and on track for Phase 1 commencement in Dec 2016 and fully operational by July 2017. For MRT2, 75% of the total estimated contracts (RM32bn) have been awarded with the remaining 6 major viaduct packages to be dished out over the next 6 to 9 months. Management guides that preliminary studies have begun for the MRT3 with targeted rollout in late 2018.

• Eyeing several jobs. Gamuda’s orderbook is now at a record high RM9bn (ex. PDP), implying 9.9x cover on FY16 construction revenue. Management aims to add another RM3-4bn to its orderbook over the next 12 months. This could potentially arise from packages involving the Gemas- JB Double Track, LRT3 and Pan Borneo Sabah. On the Penang Transport Masterplan (PTMP), study results will be made to the Dept of Environment by year end while the Railway Scheme has been submitted to SPAD.

• Property sales surge. FY16 property sales grew strongly to RM2bn (+69% YoY) due to the surge in 4Q numbers driven by strong take up (56%) for the newly launched GEM Residences, Singapore. Unbilled sales amounts to RM1.2bn or 1.1x cover on FY16 overall property revenue.

• No special dividend. An offer for SPLASH could happen as soon as next month. Assuming a 1x BV is offer is made, this would come close to RM3bn (RM1.2bn for Gamuda’s 40% stake). Nonetheless, potential for a special dividend by Gamuda is not on the cards as it will use the disposal proceeds to fund the PTMP.

Risks

• Weak domestic property sales.

Forecasts

• While the results were above expectations, we retain our FY17-18 earnings forecasts by taking a conservative stance.

Rating

• Maintain BUY, TP: RM5.65

• Gamuda is poised to resume its earnings upcycle in FY17 and potentially hitting a record high in FY18.

Valuation

• Our unchanged SOP based TP of RM5.65 implies FY17-18 P/E of 19.6x and 17.8x respectively.

Source: Hong Leong Investment Bank Research - 29 Sep 2016