Results

• Gamuda registered a net profit of RM184.9m in its 4QFY19 results, up 5.1% qoq and positive as compared to a net loss RM103.6m yoy.

• Stronger qoq performance. The Group recorded a lower PBT mainly due to lower contribution from construction segment and concession segment which offset better performance from property segment. However, lower income tax expenses in 4QFY19 helped to lift the overall profit.

• Better yoy performance. The higher yoy earnings were mainly supported by higher overseas sales (i.e. Vietnam) from property segment. Also, the Group registered positive yoy earnings as compared to a loss in 4QFY18, with a loss on disposal of Splash in 4QFY18 (i.e. -RM300m).

• Within ours but above market expectation. The Group’s 12MFY19 core net profit of RM744.4m, accounting for 101.4%/115.3% of our/consensus’ full year net earnings forecast.

Comments

• Construction - Unfavourable qoq and yoy earnings. Construction segment’s PBT tumbled -47.0% qoq and -29.4% yoy while PBT margin dropped by -3.5ppts qoq and -1.9ppts yoy, bogged down by lower profit from MRT2 after the reduction of contract value following the renegotiation by the government to work as a single Turnkey contract.
• Acquisition of Martinus Rail (MR). Gamuda has reached Heads of Agreement (HoA) to acquire 50% of stake in MR. MR is the largest independent, privately owned, Tier 2 specialist Rail Constructor in Australia with projects in Australia and New Zealand. Also, MR has built most of the new rails tracks in Australia in the last 8 years. Through the acquisition, Gamuda is able to access to market to bit for approximately A$20b for the rail based project in Australia over the next 2 to 3 years. The acquisition price is not confirmed yet, however, Gamuda guided that the acquisition amount is not significant to the Group.
• Making Australia the second construction base. Moving forward, Gamuda will continue to building strong presence in Australia through Partnering with other strong Australian players, acquisition of Australian company as well as organic growth to bid for strategic projects such as metro MRT, toll highway and etc, to further replenish its orderbook.

• Penang Transportation Master Plan (PTMP) likely to commence next year. The Group expects the project deliver partner (PDP) agreement likely to be signed (i.e. Q4CY19) as there are positive indicators from the government suggesting some key funding issues could be resolved soon. Therefore, the initial reclamation works for ‘Island A’ will probably be started in late 2020, with the key infra components (ie. LRT, Pan Island Link 1 (PIL 1)) following between 3 to 6 months thereafter.
   
• Outstanding orderbook stands at RM9.2b. Current orderbook includes RM7.7b KVMRT2, RM0.4b Pan Borneo Sarawak, RM0.4b Marine Bridge Taiwan and RM0.7b of building works. Amongst the building works secured are Rumah Selangorku (Using Industry Building System method), building work for IOI Corporation and infrastructure works for PNB.
   
• Looking forward, the construction outlook is likely to improve, mainly supported by budget 2020 which likely to provide higher development expenditure to boost mega projects such as MRT3.

• Property - Stellar qoq and yoy performances. Property segment recorded higher PBT, +68.7% qoq and 47.1% yoy, continued to be supported by 2 developments in Vietnam (ie. Gamuda City and Celadon City). Also, the segment recorded a higher PBT margin (+2.9 ppts qoq and +4.5 ppts yoy), underpinned by better margin from Vietnam projects.

• Pre-sales of RM1.1b achieved in 4QFY19, as such, total pre-sales for 12MFY19 stands at RM3.1b (89% of target sales of RM3.5b in FY19). The overseas projects (ie, Celadon City and Gamuda City in Vietnam) continued to contribute to two thirds of the overall property segment sales. Moving forward, the Group expects this segment will continue to shine, driven by overseas project, mainly in Vietnam, banking on higher selling prices and better margin contribution by Vietnam projects.

• Official launch of Anchorvale. The initial work for Anchorvale in Singapore has started and therefore we expect the official launch will be in 2QFY20. Looking forward, Gamuda guided that the project could be well received following the success of GEMS residence in Singapore.

• Continue focusing on Gamuda Cove, Gamuda Garden and Twentyfive.7. With the previous delay resulted in slower-than-expected take-up rates are now being fully resolved, the Group expects stronger presale contribution from FY20 onwards for the above projects.

• Concession segment posted lower qoq and yoy earnings. Segmental PBT decreased 47% qoq and 57.6% yoy to RM47.7m in 4QFY19. Cumulatively, 12MFY19’s PBT dropped 28.2% yoy, as result of one-off losses arising from the disposal of Splash in 4QFY18 and one-off discount on Gamuda Water’s trade receivable from the disposal of Splash

• Acquisition of 4 tolled highways by Minister of Finance (MOF). To recap, MOF offered RM6.2b cash for the acquisition of four highway concessions (i.e. Litrak, SPRINT, KESAS and SMART), which will translate to an equity value of RM2.36b (RM0.96/share). Gamuda’s Board and the respective concession boards have accepted the offers. However, the decision from the Cabinet is still pending.

Earnings Outlook/Revision

• We retain our earnings forecast for FY20F. We also introduce our FY21F net earnings of RM798.5m. Our earnings estimates for FY20F and FY21F represent growths of 1.0% and 6.9% respectively.

Valuation & Recommendation

• Upgrade to BUY from HOLD with a higher target price of RM3.92 (previous target price: RM3.35) after revising upwards of the construction segment’s sustainable orderbook P/E to 17x from 15.5x as we expect the construction outlook to improve with the anticipated announcement of mega projects such as MRT3 and PTMP along with overseas expansion in Australia. Our target price also implies 12.9x FY20F PE.

Source: JF Apex Securities Research - 30 Sept 2019