1QFY20: Sustained Earnings

Gamuda’s 1QFY20 results appear in line with our FY20 forecast but slightly above market expectations. Net profit was flat yoy at RM174m despite higher revenue (+12% yoy) due to lower construction and infrastructure profit margins. Property pre-sales of RM509m in 1QFY20 is lagging its FY20 target of RM4bn. Gamuda will potentially benefit if several large-scale infrastructure projects are revived. Gamuda remains our top large-cap sector BUY with an RNAV-based target price of RM4.30.

Within Our Expectations

Gamuda’s 1QFY20 net profit of RM174m (+1% yoy) comprises 25% of our 2020 forecast of RM704m but 27% of the market consensus estimate of RM639m. Revenue (including share of joint-venture revenue) grew 12% yoy to RM1.8bn in 1QFY20, driven by higher progress billings leading to rising construction (+11% yoy) and property (+19% yoy) revenues. However, Gamuda saw a lower construction PBT margin of 6.7% in 1QFY20 compared to 9.5% in 1QFY19. This follows the cut in the contract value for the Klang Valley MRT2 project, which squeezed its construction profit margin. Core net profit fell 13% qoq to RM174m due to lower property development profit.

Improved Prospects to Replenish Order Book

We gather that the Gamuda-led SRS Consortium is close to signing a Project Delivery Partner (PDP) agreement for the Penang Transport Master Plan (PTMP) with the state government. There is also public support for the Penang LRT project and the state government’s plan to issue RM10bn of bonds guaranteed by the federal government for financing. All this points to the potential roll-out of the project in 2H20, which will shore up Gamuda’s construction earnings over the long term. Gamuda is also a potential beneficiary if the government decides to revive the MRT3 and KL-Singapore High Speed Rail projects in 2020.

Reaffirming BUY Call; With TP to RM4.30

We believe Gamuda’s share price will sustain its recent outperformance given it is a liquid proxy for exposure to the Construction Sector. We maintain our earnings forecasts. Maintain our BUY call with RNAV-based TP of RM4.30. Downside risk: longer property market downturn.

Source: Affin Hwang Research - 16 Dec 2019