9MFY18 core earnings of RM615m (+23% YoY) were within both our and consensus expectations. The increase in earnings was mainly due to higher contribution from both property and construction segments. Overall progress on the PDP scope of MRT2 is at 22% while the underground works is 31% complete. Current outstanding order book balance is estimated at c.RM12.8bn (inclusive of PDP JV order book), representing 4.1x cover ratio of FY17 total construction revenue (inclusive of JV revenue). Property sales target for FY19 is likely to be revised downwards to flat YoY as stronger than expected sales from Singapore project has bring forward the sales contribution to FY18. Maintain forecast and HOLD with unchanged SOP-derived TP of RM3.58.

Within expectations. Gamuda reported 3QFY18 results with revenue of RM1.2bn (+23% QoQ, +47% YoY) and core earnings of RM201m (-5% QoQ, +17% YoY). This brings 9MFY18 core earnings to RM615m (+23% YoY), accounting for 77.6% and 76.5% of HLIB and consensus estimates respectively. The increase in earnings was mainly due to higher contribution from both property and construction segments. A 2nd interim Dividend of 6 Was Declared, Bringing YTD Sum to 12 Sen (FY17: 12 Sen).

Construction: Overall progress on the PDP scope of MRT2 is at 22% while the underground works is 31% complete. The first two tunnel boring machines had commenced in March and May 2018 respectively. Current outstanding orderbook balance is estimated at c.RM12.8bn (inclusive of PDP JV order book), representing 4.1x cover ratio of FY17 total construction revenue (inclusive of JV revenue).

Property: 9M18 property sales totalled RM2.6bn (+86% YoY), of which 2/3rd came from its overseas projects (Singapore and Vietnam). We understand that sales target for FY19 is likely to be revised downwards to flat YoY (FY18 sales target: RM3.5bn) as stronger than expected sales from its Singapore project has brought forward the sales contribution to FY18.

Outlook. Prospects for Gamuda remains subdued post changes in the government after GE14 and scrapping of mega rail projects such as MRT3 and HSR in which the company is a strong contender. Moreover, the domestic construction industry landscape is expected to remain challenging and we do not expect a significant improvement in near term. However, there are some positive factors brought by the changing in new federal government. For instance, rollout of Penang Master Transport Plan (PMTP) and conclusion of SPLASH deal are expected to expedite due to greater cooperation between federal and state governments. Besides, we believe local contractors are more favoured under the current administration and hence, this significantly lessens competitive pressure bring by foreign contractors in future jobs bidding.

Forecast. Maintained as the results were in line.

Maintain HOLD, TP: RM3.58. Maintained HOLD with unchanged SOP-derived TP of RM3.58. Near term prospects remain weak for Gamuda post changes in federal government due to slowing job flows. Nonetheless, earnings over the next 3 years (FY18-20) will still be supported by its ongoing MRT2 works.

Source: Hong Leong Investment Bank Research - 28 Jun 2018