Gamuda’s 9MFY18 results were within market and our expectations. Net profit jumped 23% yoy to RM615m, driven mainly by higher construction earnings. Progress billings accelerated for its Klang Valley MRT Line 2 (MRT2) project and property sales were strong at RM2.6bn in 9MFY18. Following the deferment of the MRT3 and KL-Singapore High Speed Rail (HSR) projects, order book replenishment remains uncertain. Maintain HOLD with an unchanged RM3.50 TP, based on 20% discount to RNAV.

Within Expectations

Net profit of RM615m (+23% yoy) in 9MFY18 comprised 77% of full-year consensus and our previous forecasts of RM799-801m. Revenue jumped 31% yoy to RM5.28bn (pre-FRS 11), mainly driven by higher construction (+23% yoy) and property (+58% yoy) progress billings. PBT increased 19% yoy to RM825m (pre-FRS 11), mainly driven by higher PBT for all divisions: construction (+44% yoy), property (+17% yoy) and concessions (+1% yoy). Property saw a lower profit margin due to the higher revenue contribution from low-margin overseas projects while it incurred higher costs for new township projects, ie, TwentyFive.7 and Gamuda Gardens.

Strong Property Sales

Gamuda achieved strong property sales of RM2.6bn in 9MFY18, on track to achieve target sales of RM3.5bn in FY18E. Two-thirds of sales came from overseas projects with the remainder local. Sales were slower at RM0.7bn in 3QFY18 compared to RM1bn in 2QFY18. Unbilled sales of RM2.2bn at end-3QFY18 should support revenue growth in FY18E.

Good Progress on MRT2

Works on the MRT2 is progressing well with a completion rate at 22% for the above-ground section and 31% for the underground section. The higher contribution from underground works led to the higher construction PBT margin of 10.6% in 9MFY18 compared to 9.1% in 9MFY17. The remaining orderbook is at RM6.4bn for main contractor works and about RM6.4bn remaining for project delivery partner (PDP) works.

Maintain HOLD

With the deferment of the MRT3 and HSR projects, Gamuda is focusing on obtaining approvals for its RM32bn Penang Transport Master Plan. However, order book replenishment uncertainties remain with the ongoing review of infrastructure projects by the new government. We see no immediate catalyst to spark an upward re-rating but valuations are reasonable with Price/book of 1x and FY19E PER of 11x. Maintain HOLD.

Source: Affin Hwang Research - 28 Jun 2018