Gamuda's  1QFY13  net  profit  of  RM145.4m  was  within  our  and  consensus forecasts,  coming  in  at  24.4%  of  both  estimates.  At  its  analysts'  briefing yesterday, management said its KV MRT project is largely on track but conceded that  the  property  market  outlook,  especially  in  Vietnam,  remains  sluggish,  as we had  rightly  pointed  out.  That  said,  we  are  maintaining  our  BUY  call  as  we  see growth  in  its  construction  division  to  more  than  offset  the  potential  blip  in  the group's  property  sales.  Rolling  forward  our  valuation  to  CY13  based  on  an unchanged PER of 16x, our FV now stands at RM4.90.

Within expectations. Gamuda's 1QFY13 revenue of RM771.3m was 20.1% higher y-o-y,  driven  by  its  construction  and  property divisions,  which  chalked  up  commendable growth  of  25.1%  and  15.3%  respectively  over  the  period.  Pre-tax  profit,  meanwhile, expanded  by  a  smaller  9.0%  y-o-y  to  RM182.2m  owing  to  thinner  property  margins  as well  as  higher  financing  costs  and  lower  contribution  from  its  associates.  Overall,  the 1QFY13  net  profit  of  RM145.4m  (+3.5%  y-o-y),  which  was  within  both  our  and consensus expectations, marked the group's best first quarter since its listing. On a quarterly  basis,  the  1QFY13  core  earnings  inched  up  3.5%  q-o-q  despite  a  20.5% decline in topline due to higher contribution from its concessionaire business.

Underground  works  in  place.  At  the  briefing,  management  assured  that  progress  of works on the underground portion of the Sungai Buloh-Kajang (SBK) MRT line is largely on  track.  Preparatory  works  have  started  at  all  seven  underground  stations.  Gamuda has procured 10  tunnel boring machines, of which the first two  units to be delivered by end-March  2013.  As  of  end-1QFY13,  it  had  recognised  7%  of  the  underground  works totaling RM3.8bn that it has undertaken.  

Full steam ahead in carrying out PDP role. On the MRT's elevated portion for which MMC-Gamuda is the appointed Project Delivery Partner (PDP), we gather that the group has started billing  for  work  done  and  has  recognised  5%  of  its  PDP fee,  which  worked out  to  RM35m-RM40m  as  of  1QFY13.  Judging  from  the  pictures  on-site  shown  at  the briefing,  works  seem  to  have  started  at  all  the  viaduct  packages  and  are  progressing largely on schedule.     

SBK  line  awards  at  tail-end.  Management  said  the  cost  of  the  entire  SBK  line  works out  to  RM22bn-RM22.5bn  vis-''-vis  our  previous  estimate  of  RM20bn.  To  date,  54 end-1QCY13. This is likely to translate  into  a  higher  PDP  fee  for  Gamuda,  which  our  estimates  put  at  another RM100m-RM120m. However, we have yet to incorporate this into our model pending the official awards of those contracts.

Likely  to  submit  variation  order  on  double  track  project.  The  RM12.5bn  Ipoh-Padang  Besar  double-track  project undertaken  by  Gamuda  is  currently  90% complete and looks set to  be  finished  by  2HCY14. However,  the  exact  quantum  of  the  variation  order  the  group  intends  to  submit  is  still  not  known  at  this juncture.  We  believe  the  amount  may  be  around  RM500m-RM750m,  much  lower  than  the  RM1.5bn speculated in some media reports earlier.  

Property segment slows down. The group registered RM330m worth of property sales in 1QFY13, falling short  of  its  previous  full-year  guidance  of  RM1.7bn  but  in  line  with  our  FY13  forecast  for  RM1.35bn. We believe the weaker numbers could be mainly attributed to the feeble Vietnamese property market, in which management  conceded  that  improvements  have  yet  to  materialize.  Its  unbilled  sales  now  total  RM1.2bn. On  the  domestic  front,  the group's FY13  sales  are  likely  to  be  driven  by  continued  interest  in  Bandar Botanic in Klang and Horizon Hills in Iskandar Malaysia. The year's new launches include Madge Mansions near Jalan Ampang and The Robertson along Jalan Pudu.   

Limited progress on potential disposal of concession assets. Meanwhile, management said that there has  been  limited  progress  in  talks  on  the  potential  disposal  of  its  water  and  toll  concessionaries  in Malaysia. We do not envisage much progress on this, at least until the impending national election is held.

Potential  jobs  ahead.  Gamuda's outstanding construction orderbook stands at  RM4.5bn.  With  the  SBK line  largely  on  schedule  and  its  double  tracking  contract  approaching  the  tail-end,  attention  will  shift  to securing more jobs in the near term. Management believes that at least one of the remaining two of the KV MRT's lines  may  be  awarded  by  end-CY13.  We  understand  that  the  feasibility  studies  conducted  by independent  consultants  have  been  completed  while  discussions  are  now  on  between  MRT  Corp,  SPAD and  the  relevant authorities. With  the  national  election  now  likely  to  be  held  in  1HCY13,  we  expect  more news  relating  to  the  RM8bn  Gemas-Johor  Bahru  double  tracking  project,  for  which  Gamuda  will  be partnering China Railway Construction in a joint bid in 2H next year.

BUY.  With  the  1QFY13  results  largely  in  line,  we  make  no  major  changes  to  our  core  assumptions. Nonetheless,  our  net  profit  forecasts  are  revised  marginally  higher  by  1.4%  for  both  FY13  and  FY14  for housekeeping  purposes  following  the  release  of  Gamuda's FY12  annual  report.  Rolling  forward  our valuation from FY13 to CY13,  and pegged to an unchanged PER of 16x on its construction and property earnings, our FV now stands at RM4.90. Maintain BUY.

Source: OSK