Gamuda’s 1HFY18 result was within market and our expectations. Net profit jumped 26% yoy to RM414m, driven mainly by higher construction earnings. Progress billings accelerated for its Klang Valley MRT Line 2 (MRT2) project and property sales was strong at RM1.9bn in 1HFY18. Good prospects for the Gamuda-led consortium to secure the MRT3 turnkey contract. Gamuda is our top large-cap BUY in the construction sector with a RNAV-based TP of RM5.85.

Within Expectations

Net profit of RM414m (+26% yoy) in 1HFY18 comprised 51-52% of fullyear consensus and our previous forecasts of RM803-813m. Revenue jumped 44% yoy to RM3.47bn (pre-FRS 11), mainly driven by higher construction (+42% yoy) and property (+65% yoy) progress billings. PBT increased 22% yoy to RM560m, mainly driven by higher construction PBT (+48% yoy) and concession PBT (+3% yoy). Property PBT contracted 6% yoy on lower profit margin due to higher revenue contribution from lowmargin overseas projects while it incurred higher costs for new township projects such as Gamuda Gardens and twenty.five7.

Strong Property Sales

Gamuda achieved strong property sales of RM1.9bn in 1HFY18 and fullyear sales could exceed its initial target of RM3.5bn in FY18E. 2/3 of new sales came from overseas projects when the remainder were from local projects such as Horizon Hills. We raised our property sales assumption. Unbilled sales was at RM2.4bn at end-1HFY18, which should support revenue growth in FY18E.

Good Progress on MRT2

Works on the MRT2 is progressing well with completion rate at 15% for above-ground section and 20% for underground section. The higher contribution from underground works led to the higher construction PBT margin of 10.1% in 1HFY18 compared to 9.7% in 1HFY17. Remaining orderbook is at RM6.9bn for main contractor works and about RM6.6bn remaining project delivery partner (PDP) works.

Reiterate BUY Call

We fine-tune our EPS forecasts to reflect the higher construction earnings and lower property earnings. We reduce our RNAV-based TP marginally to RM5.85 from RM5.86 to reflect lower property segment valuation, which is partly offset by higher construction division valuation and the rolling over of the valuation base year to FY19E for our DCF forecasts. Maintain BUY.

Source: Affin Hwang Research - 26 Mar 2018