Results

• Gamuda posted 1QFY17 results with revenue coming in at RM505m (-18% QoQ, -2% YoY) and earnings at RM162m (+7% QoQ, +1% YoY).

Deviation

• 1Q earnings made up 23% of our full year forecast and consensus which we deem to be inline.

Dividends

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

W Highlights

• MRT1 running, WIP for MRT2. MRT1 is 94% complete with Phase 1 commencing operations last week and Phase 2 by July 2017. For MRT2, 85% of the contracts have been awarded and the final project cost is now estimated at RM32bn. While still in its early days, alignment studies for the MRT3 (a circle line) is nearing completion and could be rolled out towards late 2018.
• Bullish on job wins. Gamuda’s orderbook is now at a record high RM8.9bn (ex. PDP), implying 12x cover on FY16 construction revenue. Management aims to add another RM3-4bn to its orderbook from 2017-2018. 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 Jan 2017 while the Railway Scheme has been submitted to SPAD.
• Property sales rebound. Property sales amounted to RM430m in 1Q, rebounding +59% YoY. Management believes that this momentum can be sustained given new launches such as Kundang Estates (Dec 2016) and Gamuda Gardens (March 2017). Unbilled sales of RM1.9bn imply a healthy cover of 2.6x on FY16 property revenue.
• Nearing a splash. Negotiations between the Federal and State governments are at a very advanced stage for the disposal of Splash (40% owned by Gamuda). A final independent valuation is ongoing and conclusion of the deal is expected in 2Q17.

Risks

• Weak domestic property sales.

Forecasts

• Although the results were within expectations, we cut FY17 earnings by 3% but raise FY18 by 2%. This is largely on some minor model updating following the release of its FY16 annual report. Rating Maintain BUY, TP: RM5.67
• Gamuda is poised to resume its earnings upcycle in FY17 and potentially hitting a record high in FY18.

Valuation

• Given the minor earnings adjustment, our SOP based TP is raised slightly from RM5.65 to RM5.67. This implies FY17-18 P/E of 20.2x and 17.5x respectively.

Source: Hong Leong Investment Bank Research - 19 Dec 2016