• Gamuda’s FY20 result was within expectations. Core net profit fell 47% yoy to RM520m in FY20 due to the disruptions caused by COVID-19.
• However, core net profit rebounded 225% qoq to RM131m in 4Q FY20 as operations resumed with the easing of Movement Control Order (MCO).
• Prospects to replenish its order book are good on expectations of rising infrastructure spending in Malaysia and Australia. We reiterate our BUY call with a slightly higher RNAV-based 12-month target price of RM4.00.

Impairment Incurred in 4Q FY20

Core net profit of RM520m (-47% yoy) in FY20 was close to market and our going-in forecast of RM517m. However, net exceptional losses of RM145m reduced net profit to RM372m in FY20. Gamuda recognised an impairment of RM148m as one of its two Industrial Building System (IBS) plants stopped operations due to weak demand. Core PBT fell 17% yoy to RM797m in FY20 due to lower construction (-10% yoy) and property (-46% yoy) earnings, partly offset by higher concession (+6% yoy) earnings. Slower construction and property progress billings as works came to a standstill for most projects and weak toll-highway traffic volumes during the 8-week MCO lockdown adversely impacted most of its operations.

Strong Operational Recovery in 4Q FY20

Gamuda’s core operations staged a strong core earnings recovery (+225% qoq) in 4Q FY20 with the acceleration in progress billings for the Klang Valley MRT Line 2 (MRT2) project and property development activities with the easing MCO restrictions in May. It chalked up RM1bn of property sales in 4Q FY20 to lift FY20 sales to RM2.2bn, albeit below its RM4bn target and RM3.1bn in sales in FY19. The remaining construction order book of RM6.9bn and unbilled property sales of RM3.3bn should support earnings growth in FY21.

Good Prospects to Replenish Order Book, But Weak Property Sales

Gamuda has set a target for property sales of RM3.5bn in FY21 and has been shortlisted to bid for the Sydney M6 Stage 1 Motorway (BMD partner) and Metro West (Laing O’Rourke partner) projects with contract awards expected in 2H21. We lift our core EPS by 3-6% in FY21-22E and introduce our FY23E core EPS (+8% yoy). We now assume higher property sales of RM2.5bn in FY21E (previous RM2bn) and faster MRT2 progress billings. The potential revival of MRT3 and KL-Singapore High Speed Rail will likely improve Gamuda’s contract wins. We reaffirm our BUY call. Downside risks: political uncertainties and delays in government project roll-out.

Source: Affin Hwang Research - 28 Sept 2020