• Gamuda’s 1QFY21 results were below market and our expectations, mainly due to weak property earnings on slow progress billings. We cut core EPS by 8% in FY21E but lift core EPS by 5-7% in FY22-23E as works pick up.
• Improved prospects to expand order book with bids for Australian infrastructure and Penang land reclamation projects.
• Share price may take a breather after a strong rebound from lows in 2020. We downgrade our call to HOLD from Buy with a slightly higher RNAVbased 12-month target price of RM4.05.

Weak property earnings

Gamuda reported net profit of RM109m in 1QFY21, comprising 18-19% of full-year consensus forecast of RM600m and our previous estimate of RM561m. We were surprised by the weak property earnings. Revenue (pre-FRS11) fell 15% yoy to RM1.51bn with lower revenue posted by all divisions: construction (-6% yoy), property (-40% yoy) and concessions (-1% yoy). Gamuda’s operations were adversely impacted by the re-imposition of Conditional Movement Control Order (CMCO) on property work progress billings and lower toll highway traffic volume. Profit margins narrowed due to high fixed costs especially for its property division. PBT fell 34% yoy to RM153m due to lower property (-70% yoy) and concession (- 49% yoy) earnings, partly offset by higher construction earnings (+11% yoy).

Good property sales

Gamuda achieved RM673m sales in 1QFY21, an increase of 32% yoy from RM509m in 1QFY20. It is targeting RM3.5bn sales in FY21. High unbilled sales of RM3.2bn will support FY21-22E property earnings as progress billings pick up. Its remaining construction order book of 6.1bn will support construction earnings in FY21-23E. The Malaysian government has agreed to revive the Klang Valley MRT Line 3 (MRT3) and Kuala Lumpur-Singapore High Speed Rail (HSR) subject to concluding negotiations with the Singapore government. Gamuda is vying for these 2 local projects and the Penang South Reclamation (PSC).

Downgrade to HOLD

Gamuda is targeting new contract wins of RM10bn in 2021, including the PSC and the Australian infrastructure projects. Following the outperformance of the stock, we downgrade our call on Gamuda to HOLD from Buy. We lift our RNAV-based TP to RM4.05 from RM4.00 after rolling forward the valuation base year to FY22E, and incorporating higher valuations for its property and construction divisions.

Source: Affin Hwang Research - 22 Dec 2020