Gamuda’s FY19 result was within our expectations but above market’s. Core net profit fell 13% yoy to RM720m in FY19 due to lower construction and concession core earnings. Gamuda will take up a 50% stake in Australian-based Martinus Rail (MR) to speed-track its expansion into the Australian infrastructure construction market. Good prospects to expand its order book of RM9.2bn currently with potential bids for projects in Malaysia and Australia. Gamuda remains our top large-cap sector BUY with raised RNAV-based TP of RM4.30.

Within Our Expectations

Gamuda’s FY19 net profit of RM706m was in line with our estimate of RM704m but above market consensus forecast of RM615m. Net profit jumped 33% yoy in FY19, mainly due to lower net exceptional losses of RM14m (mainly due to impairment of receivables) in FY19 compared to RM298m in FY18 (loss on sale of SPLASH and discount on Gamuda Water’s receivables). PBT was up 20% yoy to RM974m, driven by higher property (+14% yoy) and concession (+156% yoy) earnings, partly offset by lower construction earnings (-16% yoy). Core net profit fell 13% yoy to RM720m due to lower construction (lower MRT Line 2 contract value) and concession (loss of SPLASH earnings following disposal) core earnings.

Expand Overseas Via Acquisition and Expect Rebound in Property Sales

Gamuda executed a Heads of Agreement to acquire a 50% stake in MR, Australia’s largest independent specialist rail constructor. Gamuda will provide the balance sheet to support MR with its bids for railway projects in Australia worth about A$20bn. Gamuda achieved lower property sales of RM3.1bn in FY19 (-14% yoy compared to RM3.6bn in FY18). The sales were below its target of RM4bn due to the weak local market conditions. With the sustained strong overseas property sales and expansion in local sales (more launches at Gamuda Cove, Gamuda Gardens and twentyfive.7 townships), Gamuda is targeting sales of RM4bn in FY20.

Maintain BUY

We fine-tune our FY20-21E EPS (+1-2%) and introduce FY22E. Weak core earnings prospects (3-year CAGR of -5%) are due to potential loss of toll road concession earnings (assumed in our forecasts) following the proposed disposal to the government for RM2.36bn. But good prospects to expand its construction and property earnings with funds for reinvestments. We reiterate our BUY call with raised RNAV-based target price of RM4.30 from RM4.25 previously to reflect higher overseas property division valuation.

Source: Affin Hwang Research - 30 Sept 2019