Period     3Q13

Actual vs. Expectations  Gamuda’s 9M13 net profit of RM373.7m came in within our expectation but below consensus, accounting for 75% and 64% of ours and streets estimates respectively. 

Dividends    As expected, an interim dividend of 6 sen was declared in 3Q13. Cumulatively, Gamuda has declared 12 sen DPS.

Key Results Highlights   QoQ,  although 3Q13 revenue inched higher by 3% to RM905.6m, Gamuda’s net profit declined 54% to RM71.4m. The decline in net profit was mainly due to Gamuda has made provision of RM113m following the tribunal awards. Nonetheless, it was not a surprise to us as we have already imputed in the one-off litigation costs.

YoY,  Gamuda’s core 1Q13 net profit increased by 50% thanks to stronger construction and concessions divisions’ revenue. On normalised basis (excl litigation loss), the construction margin grew to13% from 11%. However, due to slower property sales recognition during the quarter dragged the Group’s PBT margin lower to 23.7% from 26%.

Outlook    Remain bright, especially now after GE13 as there is continuity in key government plans (i.e. ETP, 10MP). We reaffirm our view that Gamuda is likely to clinch for another tunnelling package and PDP appointment for MRT2 due to its familiarity on the project coupled  with positive feedbacks from clients and authorities (i.e. SPAD, Pemandu, MRT Corp) in managing MRT1 elevated portion.   

We are also upbeat on its property division as Gamuda has continued pursuing strategic landbanks in Malaysia (i.e. Klang Valley and Johor) for bigger GDV potential. So far, it has acquired 2 parcels of strategic land in Rawang for RM667m this year. With this, it will add another potential GDV of RM5.3b to total of RM14b (i.e. Malaysia only) in its portfolio. They are now allocating about RM1.0b per annum for landbanking over the next 2 years.

We can also expect some potential sale of assets (i.e. Litrak, SPLASH) in the near-medium term which potentially the sale proceeds will be: 1) distributed to shareholders, and 2) utilized for landbanking activities.

Change to Forecasts   Our earnings estimates remain unchanged.

Rating    Maintain OUTPERFORM

We are maintaining our OUTPERFORM recommendation on GAMUDA and the stock remains as our Top Pick for the sector due to its direct beneficiary of Malayisa’s railinfrastructure growth story. 

Valuation     We adjusted our Target Price from RM5.20 to RM5.30 after we change our valuation methodology to SOP-based from PER to reflect better break-up value of the Group. 

Risks    Delays in MRT execution and awards.

Rising building material costs.

Source: Kenanga