The full impact of the government’s Movement Control Order (MCO) was felt by Gamuda in 3Q FY20. Most of its operations came to a virtual standstill for half the period in 3Q FY20. Net profit of RM389m (-25% yoy) in 9M FY20 was below market and our expectations. Gamuda resumed operations in early-May and, hence, its earnings should recover in 4Q FY20. We cut our core EPS by 15% in FY20E to reflect slower progress billings for its property division. Gamuda has cut its DPS by 50% to 6 sen to retain cash amidst the current economic downturn. We maintain our HOLD call with a RNAV-based target price of RM3.75.

Below Expectations

Gamuda’s 9M FY20 net profit of RM389m (-25% yoy) comprises 63-66% of the consensus FY20E of RM617m and our previous estimate of RM583m. Revenue fell 4% yoy to RM5bn due to the contraction in property (-23% yoy) and concession (-10% yoy) revenue, partly offset by a 7% yoy growth in construction revenue. The disruption caused by the MCO led to revenue falling 43% yoy to RM1bn in 3Q FY20. PBT contracted by a sharper 24% yoy to RM561m in 9M FY20 as costs remained high while revenue declined. Overall, the PBT margin fell to 11.2% in 9M FY20, compared to 14.1% in 9M FY19.

MRT2 Works Resumes

One-off costs were incurred to test workers for COVID-19 (none infected) before restarting work at construction sites and the reorganisation of Central Labour Quarters to prevent the disease. Works on the Klang Valley MRT Line 2 (MRT2) have resumed at about 70-75% of optimum capacity currently and ramping up to near full capacity in FY21. Order book of RM7.5bn will likely sustain its construction activities for at least the next 2 years.

Lower Sales Target

Gamuda only achieved property sales of RM250m in 3Q FY20 due to the MCO, lifting total sales to RM1.2bn in 9M FY20. It has cut its sales FY20 target to RM2bn from RM4bn previously with RM1.2bn in bookings to convert to sales in 4Q FY20. The launch of its OLA executive condominium with a gross development value of RM2bn saw an encouraging take-up of 34% despite the circuit breaker implemented in Singapore. Slow progress billings due to stop work orders during MCO. Unbilled sales remain high at RM3bn.

Maintain HOLD

We believe the worst is over for Gamuda in 3Q FY20 with the resumption of its operations. Maintain our HOLD call with 12-month target price of RM3.75. Key upside/downside risks are faster/slower construction progress billings.

Source: Affin Hwang Research - 25 Jun 2020