Period  1Q15/3M15

Actual vs. Expectations 3M15’s net profit of RM185.8m came in within expectations, constitutes 25% and 24% of ours and consensus’ estimates.

Dividends  As expected, first interim DPS of 6.0 sen was declared. We expect another 6.0 sen to be declared in 3Q15. In total, we expect GAMUDA to pay 12.0 sen DPS, implying 2.5% yield.

Key Results Highlights QoQ, 1Q15 net profit fell by 7% due to higher effective tax rate of 19% vs. 15% in 4Q14. However, at a pretax level, all divisions were flattish except for property division which was up 9% thanks to billings of higher margin projects. As for the construction division, PBT was flat due to the group’s MRT1 tunneling jobs which has past the midway point of the project which results in lower margins albeit a 109% increase in the segment’s revenue.

 YoY, GAMUDA’s net profit rose by 12% driven mainly by higher profits from expressway following acquisition of additional 30% stake in KESAS.

 As at end-1Q15, the group has RM1.8b worth of orderbook which solely coming from MRT1. As for property, the group has only fetched RM243m worth of sales as at end-1Q15, down 21% QoQ and 58% YoY. This is only 13% of our property sales forecast of RM1.8b.

Outlook  While we are cautious on GAMUDA’s property division after its sales came in below than expectations, we remain upbeat on its construction division given that its wellprogressed MRT1 and upcoming MRT2 projects will continue to provide earnings visibility for the group over short-to-long-term.

Change to Forecasts We revise lower our FY15-16E earnings by -6%-4.5% after (i) lowering down our FY15-16E property sales forecast to RM1.0b-RM1.3b from RM1.8b previously to reflect on the cautious view on property market, (ii) imputing RM4.0b new orderbook in FY16 as we expect MRT2 to start contribute (although very small) in FY16 onwards.

Rating Maintain OUTPERFORM

Valuation  Despite slowdown in the property market which has somewhat impacted GAMUDA, we reaffirm our view that GAMUDA is the biggest beneficiary of the upcoming MRT2 news flows.

 We have adjusted our SOP-based Target Price to RM5.29 from RM5.52 after: (i) rolling forward our valuation parameter to FY16, (ii) revised Litrak’s market cap, (iii) imputing Kota Kemuning’s extension and Tanjong 12 (Cyberjaya) property project in our property RNAV model and (iv) imputing higher discount of 40% from 30% for our property RNAV to reflect our negative view on property sector.

 GAMUDA is currently trading at 15.5x FY16 PER which is still cheap as compared to its 5-year average of 16.0-17.0x. Our new Target Price of RM5.29 implies FY16E PER of 17.1x in line with its 5-year average fwd-PER.

Risks to Our Call Delays in MRT1 construction progress, unexpected scrapping of MRT2 project, another deadlock in SPLASH takeover deal, higher-than-expected input costs, lowerthan-expected property sales.

Source: Kenanga