Gamuda’s 1QFY18 result was within market and our expectations. Net profit increased 25% yoy to RM203m. This was mainly driven by the construction (+105% yoy) and property divisions (+8% yoy). Despite some delays in winning new contracts, we believe prospects for Gamuda to replenish its order book remains good. The launch of new property projects also spurred pre-sales to more than double to RM903m. Maintain BUY with RNAV-based TP of RM5.86.

Within Expectation

Gamuda’s net profit of RM203m (+25% yoy) in 1QFY18 comprise 25-26% of consensus and our FY18E net profit forecasts of RM786-813m. Net profit jumped 98% qoq due to the non-recurrence of the write down for SMART expressway concession amounting to RM98m in 4QFY17. Core net profit grew 27% yoy but fell by 2% qoq.

Construction Strength

Gamuda’s construction division was the main earnings driver in 1QFY18 with net profit jumping 105% yoy to RM83m, comprising 41% of group earnings. The acceleration of progress billing for the Klang Valley MRT Line 2 (MRT2) project contributed to the surge in earnings. RM30.8bn worth of contracts (97% of overall works packages) have been awarded for the MRT2 with cumulative progress of 13.3% up to 30 October 2017.

Delays in Underground Works for MRT2

The starting up of underground works has been due to changes in design for the stations and delay in site possession, which could delay the completion by up to 9 months. However, MMC Gamuda joint venture is working with the government to catch up and achieve the original completion date on 31 July 2022. We believe MMC Gamuda is unlikely to face any liabilities for the delays as it is due to change in design instructed by the client and site possession delays.

Maintain BUY

We reiterate our BUY call with RNAV-based target price of RM5.86. Gamuda remains our top BUY among large-cap construction stocks. It remains the proxy for the massive infrastructure spending in Malaysia. Key risk is further delays in securing new contracts.

Source: Affin Hwang Research - 18 Dec 2017