• Gamuda’s core net profit grew 19% qoq to RM130m in 2QFY21, driven by higher construction and concession earnings. But core earnings declined 32% yoy to RM239m in 1HFY21 due to the Covid-19 pandemic disruptions.
• The Penang South Islands (PSI) Island A Phase 1 project that will kick off next month is expected to nearly double its order book to RM10.5bn.
• We expect better 2HFY21 results due to lumpy overseas property earnings and higher sales. Gamuda remains our top large-cap sector BUY with 12- month RNAV-based target price (TP) of RM4.05.

Within Our Expectation

We deem Gamuda’s 1HFY21 core net profit of RM239m (-32% yoy) within our expectation but below the market’s, comprising 46% of our FY21 forecast of RM516m and 42% of the consensus estimate of RM554m. Revenue (pre-FRS11) fell 28% yoy to RM2.89bn with lower revenue posted by all divisions: property (-46% yoy), construction (-23% yoy) and concessions (-5% yoy). Gamuda’s operations were adversely impacted by disruptions caused by the Movement Control Order (MCO) and Covid-19 pandemic. EBIT margin declined 1.8ppt to 5.9% in 1HFY21 due to high fixed costs while revenue declined. PBT fell 31% yoy to RM327m in 1HFY21 due to lower property (-80% yoy), construction (-21% yoy) and concession (-9% yoy) earnings. Net profit fell 33% yoy due to higher minority interests and unrealised forex loss of RM6m.

Good Property Sales

Gamuda achieved RM1.5m sales (+50% yoy) in 1HFY21, driven by higher overseas property sales that contributed 2/3 of total sales. Target sales of RM3.5bn in FY21 was maintained. High unbilled sales of RM3.6bn will support FY21-22E property earnings as progress billings pick up. Elections in Vietnam delayed property sales in 1HFY21. Its remaining construction order book of RM5.5bn will support construction earnings in FY21-23E. PSI will potentially add a new RM5bn reclamation contract to improve its earnings visibility. The Klang Valley MRT Line 3 (MRT3) and Australian infrastructure projects could expand its order book further if secured.

Maintain BUY Call

Gamuda is on track to meet its target new contract wins of RM10bn in 2021 with half to be secured from the PSI project. We cut our FY21E DPS to zero as we believe Gamuda will likely conserve cash due to pandemic uncertainties. We maintain our top sector BUY call on Gamuda with an RNAV-based TP of RM4.05.

Source: Affin Hwang Research - 31 Mar 2021