Result

• Gamuda posted revenue and net profit of RM1013.2m and RM102.8m respectively in 4QFY17. We derived core net profit of RM198.6m for 4QFY17 after adjusting an one-off impairment of RM98.5m for SMART assets due to low traffic volume. Core net profit in 4QFY17 saw a growth of 17.7% qoq and 32.3% yoy. The performance recorded in 4Q was mainly lifted by better performance in property development and club operations.

• Within expectations – 12MFY17 core net profit of RM700.6m is in line with both of our and consensus expectation.

Comment

• Construction segment regained its momentum in FY17. Construction’s 4QFY17 PBT slid 10.1% qoq but inched up marginally by 0.3% yoy. However, 12MFY17’s PBT surged by 41.7% yoy. The stellar performance was driven by rapidly increasing works on KVMRT2 as construction was in full swing. Meanwhile, the 1st tunnel drive for KVMRT2 is expected to commence in Feb 2018 whilst mainstream works is envisaged to start for Pan Borneo Sarawak project. The performance in construction segment was back by a better margin of 9.3% (+0.8 pts from 8.5% in FY16).

• Construction outstanding orderbook stands at RM7.8b. The outstanding orderbook of RM7.8b is mainly made up by KVMRT2 underground package (remaining RM6.9b) coupled with Pan Borneo Sarawak (remaining RM0.9b). We understand that one of the LRT3 packages that the group is tendering was suspended and it was believed due to changing in layout. Going forward, the group is looking to secure more contracts of Pan Borneo Highway (Sabah) KVMRT3 and ECRL, with an average total target orderbook of RM3-4b per year. We learnt that ECRL project is divided into 8-9 packages and the group aims to get one of the packages. Meanwhile, the remaining packages are believed to be secured by subsidiaries of China-based CCCC.

• Record performance in Vietnam boosted FY17. Property segment’s PBT in 4Q doubled on quarterly and yearly bases to RM 96.4m as a result of higher revenue (+62.8% qoq, +108% yoy) and recovery in margin (+3.13 pts qoq and + 0.1 pts to 13.1%). Overall, 12MFY17 PBT came in at RM240m (+9% yoy), backed by higher revenue (+66.5% yoy) of RM1.87b, of which, Vietnam contributed almost RM1b (accounted for more than 50%).

• Property segment’s margin foreseen to remain weak. Property segment’s PBT margin in FY17 slid to 12.9% (-6.8 pts yoy) from 19.7% in FY16. Current level of margin is expected for coming quarters given the unfavourable sales mix (lower profitability of overseas projects) coupled with higher upfront costs for new townships (Gamuda Garden and Twentyfive.7).
• Presales in FY17 hits record of RM2.4b, lifted by RM1b presales in 4QFY17. We understand that presales achieved in 4Q for domestic portion was attributed by resilient demand in Gamuda Garden project with Phase 1 being fully sold out. Looking forward, presales target has been raised to RM3.5b (RM1.86b domestic and RM1.64b overseas) by the management in FY18. The relatively high presales target is expected to be driven by future launches in Gamuda Garden, Twentyfive.7, and sustained strong sales from Vietnam and Singapore. Meanwhile, unbilled sales for property segment stand at RM2b.
• Concession segment remained resilient – Concession segment’s 4QFY17 PBT up 14.4% qoq and 19.7% yoy. Overall, 12MFY17’s PBT for concession segment improved 6.9% yoy after adjusting for the one-off impairment for SMART toll assets in view of the low traffic volume. The yearly growth in concession segment was mainly attributed by Tolls concession despite a slowdown in traffic volume given higher toll rate.

• SPLASH disposal remains open. We understand from the management that stakeholders of the SPLASH have come up with a new proposal, yet, there is still no conclusion reached. Should it be successful, management does not rule out the possibility of distributing the proceeds to shareholders as a special dividend.

• Progress in Penang Transport Master Plan (PTMP) still inconspicuous. The validity of the LOA for appointment as PDP for the PTMP has yet again being extended by state government. We learnt that Gamuda submitted its PTMP public transportation plan to Land Public Transport Commission (SPAD) for approval and also submitted the detailed environmental study to the Department of Environment (DOE) for approval. It is still uncertain whether the project will proceed as it is subject to the approval by the federal government authorities.

Earnings Outlook/Revision

• We tweak down our earnings forecast for FY18F by 8.4% in view of weaker margin in property segment. Meanwhile, we introduce our earnings forecast for FY19 with a yoy growth of 2.3%.

• Our earnings forecasts still include the earnings from SPLASH. We understand that the Water concession contributes roughly a quarter to latest full year PBT.

Valuation & Recommendation

• Maintain HOLD with an unchanged target price of RM5.44 based on SOP valuation. Our target price also implies 20.6x FY2018F PER. Our fair value on Gamuda is yet to account of the PMTP’s PDP role due to the uncertainty on roll-out of the project.

• We maintain our neutral stance as we deem current share price is fairly valued. We believe the anticipation of strong growth in FY17 onwards is reflected in current share price. In addition, concern on the weak performance in its property division also limits the upside. Meanwhile, potential catalyst from PTMP’s PDP role remains tepid given its uncertainty and risk factors.

Source: JF Apex Securities Research - 29 Sept 2017