Results

• Gamuda posted 4QFY17 results with revenue of RM1bn (+21% QoQ, +65% YoY) and reported earnings of RM103m (-40% QoQ, -32% YoY).
• However, included in the quarter’s results was a RM98m one off impairment for SMART (equity accounted as JV profits) as a result of lower than expected toll revenue projections. Stripping this out, 4Q earnings would stand at RM201m (+18% QoQ, +32% YoY).
• On a core earnings basis (ex SMART impairment), full year FY17 came in at RM701m, increasing 12% YoY.

Deviation

• Full year FY17 core earnings were within our expectations at 103% of our forecast (consensus: 101%).

Dividends

• No final DPS. Cumulative FY17 at 12 sen (unchanged YoY).

Highlights

• MRT2 on track. MRT2 has seen 94% of its project value being awarded comprising 36 work packages valued at over RM30bn. Completion rate for the PDP scope is at 11% with earthworks and foundations are at an advance stage while viaduct launches have commenced for some stretches. As for the underground portion, this is at 10% completion. Refurbishment of the existing 10 tunnel boring machines (TBM) has been done and 2 new ones have been tested. This first tunnel drive will begin in 1Q18.
• Eyeing on mega rail jobs. Management is hopeful to add another RM10bn to its orderbook over the next 1-2 years. On the ECRL (RM55bn), Gamuda is eyeing on a significant portion of the subcontract works and will leverage on its track record with the Northern Double Track. On the MRT3 (RM40bn), project details are being finalised by SPAD with Cabinet approval anticipated by mid-2018 and project rollout in early-2019.
• Strong launch pipeline. FY17 property sale hit RM2.4bn (RM1bn in 4Q alone driven by new launches), increasing 14% YoY. Management has raised FY18 sales target by c.50% to RM3.5bn given its strong launch pipeline which include Kundang (launched), Gamuda Gardens (4Q17), Twentyfive.7 (4Q17) and Gamuda Cove (mid-2018).

Risks

• Non approval or delays for Penang Transport Masterplan.

Forecasts

• Unchanged as the results were inline but there is upgrade potential should FY18 property sales surprise on the upside. Rating Maintain BUY, TP: RM6.36
• Gamuda’s earnings upcycle is poised to hit another round of multi-year highs in FY18 and FY19. It is also a key play to ride on the upcoming mega rail projects such as the LRT3, ECRL and HSR.

Valuation

• Our unchanged SOP derived TP of RM6.36 implies FY18-19 P/E of 19.4x and 16.6x respectively.

Source: Hong Leong Investment Bank Research - 29 Sep 2017