Results

• Gamuda posted 2QFY18 results with revenue coming in at RM1bn (+30% QoQ, +17% YoY) and earnings of RM211m (+4% QoQ, +27% YoY). This brought cumulative 1H18 earnings to RM414m, increasing 26% YoY.

Deviation

• 1H18 earnings accounted for 53% of our full year estimates (consensus: 52%) which is within expectations.

Dividends

• 6 sen DPS interim (unchanged YoY).

Highlights

• Countdown to MRT3. The MMC-Gamuda-GKent JV and China state owned CCCC are the finalists for the MRT3 (RM45bn). For the local JV, MMC (not-rated) and Gamuda will each hold a 45% stake while the balance 10% will be held by GKent (BUY, TP: RM5.66). Management guided that a decision on the turnkey award will be made in a matter of weeks. In our view, the balance of favour is likely to be tilted towards the JV given (i) its pure local setup; and (ii) lower financing rate at 4.7% (ringgit denominated) compared to CCCC’s 5% (USD denominated). Bagging the MRT3 would significantly boost Gamuda’s orderbook by 2.5x to RM34bn from its current level of RM13.9bn (includes MRT2 PDP). To recap, MRT3 will be a circle line with 32km of its alignment underground and 8km elevated.

• 3-cornered fight for HSR. Management guided that the tender for the HSR PDP role (InfraCo) has closed and results will be out by mid-2018. Apart from the Gamuda MRCB (BUY, TP: RM1.31) JV, the other contenders include a (i) a JV between IJM (BUY, TP: RM3.49), SunCon (BUY, TP: RM2.85) and a local Bumi co; and (ii) a YTL (not-rated) led consortium. We gather that the HSR infra works will amount to RM35-40bn. Even if Gamuda fails to clinch the PDP role, it still has a participating chance as it can bid for the work packages tendered out by the PDP.

• Overseas boost for property sales. 1H18 property sales totalled RM1.9bn (+123% YoY), of which 2/3 came from its overseas projects (Vietnam and Singapore). Margins were nonetheless under pressure given (i) stiff competition for its overseas developments; and (ii) high start-up costs for its domestic townships.

Risks

• Lower-than-expected orderbook replenishment.

Forecasts

• FY18-20 earnings raised by less than 1% due to minor model up keeping adjustments.

Rating

Maintain BUY, TP: RM5.98

• 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 MRT3 and HSR.

Valuation

• SOP based TP is raised marginally from RM5.95 to RM5.98 due to the slight earnings increase.

Source: Hong Leong Investment Bank Research - 26 Mar 2018