Period    1Q13/3M13

Actual vs.  Expectations  The 1Q13 core net profit of RM145m came in within expectations, accounting for 26% and 24% of ours and the consensus forecast respectively.  

Dividends    A single tier interim dividend of 6 sen was declared.

Key Result Highlights   YoY, the 1Q13 core net profit of RM145m increased by 10% on the back of 20% higher revenue. This is due to positive contribution from its construction income and PDP fees from the MRT project. Overall, the pre-tax margin fell by 2ppts to 24% as the property margin was slightly lower to 25% due to slower take-ups for its overseas property sales. However, the construction division remains as the main earnings contributor with a 29% increase in pre-tax profit with margin at 12% (1Q12 at 11%). YTD, the progressive works for MRT tunnelling and elevated works stood at 7% and 5% respectively. 

 QoQ, the revenue and core net profit drop by 20% and 9% respectively due to seasonally slower property sales (-3%) and the S-curve effect on the execution of its newly-secured construction contracts i.e. MRT. However, weaker performance is not a surprise as 1Q is always the weakest quarter for Gamuda. The company's property earnings came mainly from Malaysia with its Vietnam's projects contribution being minimal.

Outlook   The current order book stands at RM4.5b until 2017. The big chunk of the contract value came from MRT tunnelling works (RM3.8b). There was no guidance from management on the divestment of Litrak. However, should this crystallise, this will be the key catalyst for Gamuda in the near term.

Change to Forecasts We have tweaked our FY13E and FY14E earnings slightly higher by 4% and 5% respectively as we had tweaked our margin assumption higher for its construction division.

Rating    Maintain OUTPERFORM

 We believe that Gamuda will be in the limelight for its Litrak divestment and tender bids for MRT 2 and EDTP.

Valuation    We have upgraded our TP to RM4.29 from RM4.12 (based on an unchanged 15x PER FY13) as we have revised our earnings estimates higher for FY13E and FY14E. 

Risks   Constructions delays and slower property sales i.e. build and sell concept in HCMC.  

Source: Kenanga