Results

• Gamuda recorded PATAMI of RM172m in 1QFY19, down 15.4% qoq and 15.47% yoy.

• The slide in performance was mainly attributed to disposal of Splash.

• Within expectation – 3MFY19’s PATAMI met ours and consensus’ full year earnings forecast by matching 27.9% and 26.8% respectively.

Construction

• QoQ performance improved in view of better work recognition but YoY performance was bogged down by lower margin. PBT up 59.5% qoq but slid 6.9% yoy at RM98.4m in 1QFY19, underpinned by a revenue of RM1032m, which was up 8.7% qoq but inched down 0.2% yoy.

• Looking forward, construction margin would be thin given cost rationalization imposed by government. To recap, Gamuda had turned from PDP role to turnkey contractor for KVMRT2. As a result, the whole contract value is reduced to RM30.5b with completion date remains unchanged in mid-2022. As such, 2 underground stations have been shelved with remaining stations’ size and scope downgraded. In addition, less train set will be purchased.

• Outstanding orderbook stands at RM11.8b after securing RM0.9b building works. The orderbook includes RM10.2b KVMRT2, RM0.7B Pan Borneo Sarawak, and RM0.9b of building works. Among the building works secured are Rumah Selangorku (Using Industry Building System method), building work for IOI Corporation and infrastructure works for PNB.

• Gamuda eyes on oversea markets to further replenish its orderbook besides local jobs. The group is targeting Australia, Vietnam, Taiwan and Singapore to participate in their respective metro projects and wish to secure rail-related works. Nevertheless, the group is still tendering for local jobs.

• Penang Transportation Master Plan (PTMP) saw some progress, targeting to obtain all approvals by end 1QCY19. To recap, SRS consortium (in which Gamuda having 60% interest) signed an agreement with Penang State government and take up the role as Project Delivery Partner (PDP) for the PTMP. Total PTMP is worth RM32b which consists 3 phases. For the LRT part, it is understood that it worth RM8b. We gathered that LRT project has gained principle approval from Federal that subject to some changes. At the meantime, it is still awaiting DoE’s final approval.

Property

• QoQ performance was down on high base in 4QFY18 whilst slide in YoY performance due to lower contribution from Malaysia’s project. PBT down 58.3% qoq and 6.6% yoy to RM46.6m. Nevertheless, property margin saw improvement YoY. It was mainly due to better margin achieved in Vietnam which was partly mitigated by local township projects which are still in the initial phases.

• Achieved pre-sales of RM0.6b in 1QFY19, keeping its RM4b sales target for FY19. We understand that roughly 60% of pre-sales RM0.6b were achieved from oversea projects, i.e. Celadon City and Gamuda City in Vietnam. Meanwhile, the remaining 40% were domestic projects. Moving forward, Gamuda expects Gamuda Cove, Gamuda Gardens and Twentyfive.7 to drive domestic sales in coming quarters.

• Gamuda Cove sees strong initial sales – All 180 landed residential units launched have been fully sold and a new interchange expected to be completed in 2QFY19 which will provide direct access into the township.

• Looking forward, Gamuda earnings will be driven by its property segment, underpinned by unbilled sales of RM2.3b. We learnt that majority of the unbilled sales comprise Vietnam projects and these projects are starting to generate better margins, which will buoy Gamuda’s earnings in future.

Concession

• Lower earnings in concession segment in view of the disposal of Splash. PBT decreased 0.9% qoq and 17.1% yoy to RM94.5m in 1QFY19.

• Splash disposal concluded for RM2.55b cash (RM1.02b cash for Gamuda’s 40% share). This will be RM0.76b cash upfront, with remaining RM0.26b to be paid via installments over 9 years plus 5.25% interest on outstanding balances. We understand that Gamuda will utilize the proceeds to pare down borrowings. The proceed is expected to be received by 1QCY19. In addition, Gamuda Water expects to receive payment from state (for settling its outstanding receivables), an amount of RM650m, of which RM520m is Gamuda’s 80% share.

• Looking forward, concession segment is underpinned by Highways and Gamuda Water, being an operations and maintenance (OM) operator. Highways is expected to post stable growth in traffic volume and government will compensate for scheduled toll hikes. Meanwhile, Gamuda Water and Air Selangor are currently in the midst of finalizing the terms of the debt settlement and new OM agreement.

• Declared first interim dividend of 6 sen per share with ex-date on 7 Jan 2019. We expect a total dividend of 12 sen per share for FY19, which translates into a dividend yield of 5.26% based on current share price of RM2.28.

Earnings Outlook/Revision

• We keep our earnings forecasts for FY19 and FY20 unchanged.

Valuation & Recommendation

• Upgrade to BUY from HOLD with an unchanged target price of RM2.70 as we opine that value re-emerges following recent drop in share price. Our target price implies 12.5x FY19F PE.

Source: JF Apex Securities Research - 17 Dec 2018