New growth cycle

Gamuda’s 1QFY17 result was below market and our expectations. Net profit was up 1% yoy to RM162m in 1QFY17 (-10% yoy in 1QFY16) on higher construction and concession earnings. We downgrade our EPS forecasts by 1-4% in FY17-19E due to lower contract value for MRT Line 1 (MRT1) project. Prospects are good for Gamuda to expand its order book. We reiterate our BUY with a reduced RNAV-based TP of RM5.70.

Earnings rebound

Net profit of RM162m in 1QFY17 comprised only 22-23% of consensus and our previous full-year forecasts of RM716-723m. Revenue fell 11% yoy to RM1.1bn in 1QFY17 as MRT1 is at the tail end (94% complete), while MRT2 has not started to contribute significantly (<2% complete). Property revenue fell 2% yoy in 1QFY17 as strong sales of RM2.05bn in FY16 has not contributed significantly yet. PBT rose 2% yoy to RM221m in 1QFY17 on higher earnings in construction (+16% yoy) and concessions (+15% yoy). Property PBT fell 29% yoy due to lower profit margin.

Launched two new township projects in Malaysia

Property sales fell to RM430m in 1QFY17 from RM1.48bn in 4QFY16 as there was no new launches in 1QFY17. Strong sales of RM830m for its maiden launch of GEM Residences condominium in Singapore (56% take up rate) boosted sales in 4QFY16. Gamuda is targeting sales of RM2.1bn (+3% yoy) in FY17. Kundang Estates township project in Malaysia was launched on 26 November 2016. RM30-35m bookings (75% of total units launched) were secured for its maiden launch of terrace houses to date.

Interested in new rail projects in the pipeline

Gamuda is bidding for new projects, such as the Gemas-Johor Bahru Double Tracking, LRT Line 3 and Pan Borneo Highway Sabah, and is targeting RM3-4bn new contracts in FY17. In addition, it is also interested to bid for the East Coast Rail Line and KL-Singapore High-Speed Rail projects. Prime Minister Datuk Seri Najib Razak said the cost of MRT1 was lower at RM21bn compared to the initial estimate of RM23bn. We cut our EPS by 1-4% for FY17-19E to reflect the lower project delivery partner fee.

Top large-cap BUY

Current construction order book of RM17bn and unbilled property sales of RM1.9bn should underpin a 10% yoy earnings rebound in FY17E. Gamuda is our top BUY among large-cap construction names. We reduce our RNAVbased target price by 1% to RM5.70 due to dilution from new shares issued under its employees’ share option scheme. Key risk: project delays.

Source: Affin Hwang Research - 19 Dec 2016