Period

2Q15/1H15

Actual vs. Expectations

1H15 net profit of RM368.1m came in within expectations, as it constitutes 54% and 49% of our and consensus FY15 earnings estimates, respectively.

Dividends

None as expected

Key Results Highlights

QoQ, 2Q15 net profit was marginally lower by 2% to RM182.3m as it was dragged down mainly by property division despite its superior performance in construction segment. Property segment’s PBT was down by 21% due to lower sales recognition coupled with lower margins. PBT margins for property division declinedby 5 ppts to 22% due to more low margins products recognized in 2Q15. As for the construction division, PBT was up by 40% thanks to MRT1 tunneling project reaching mid-end construction stage.

Overall, 2Q15 net profit rose by 7% YoY while YTD earnings was up 10% driven mainly by higher profits from expressway following the acquisition of additional 30% stake in KESAS.

As at end-2Q15, the group has RM1.6b worth of orderbook, solely coming from MRT1. Note that we only expect GAMUDA to replenish its orderbook (i.e. RM5.0b from MRT2 tunnelling) in FY16. As for property segment, the group fetched RM535.0m new sales as at 1H15, down 45% YoY. This makes up 53.5% of our property sales forecast of RM1.0b.

Outlook

As there will be delay in MRT2 implementation due to potential changes in alignment coupled with a slowdown in the property market, GAMUDA’s near-medium-term earnings outlook could be challenging.

Elsewhere, GAMUDA is shortlisted for PDP role for: (i) RM27.0b Penang ITMP, and (ii) RM9.0b LRT3 project. We expect these two projects to be awarded by middle to end of this year. (refer overleaf).

Change to Forecasts

• Unchanged.

Rating

• Downgrade to MARKET PERFORM

Valuation

GAMUDA’s share price has rallied by 14.8% since we feature the stock as Top Pick in 3Q14 Strategy (July 2014). With the uncertainty in its earnings outlookin the near-medium-term, we reckon there is limited upsideto current valuations. As such, we downgrade GAMUDA to MARKET PERFORM from OUTPERFORM previously with unchanged SoP-based Target Price of RM5.29. Our TP implies FY16E PER of 17.1x, in line with its5-year average fwd-PER.

Risks to Our Call

(i) faster MRT1 construction, (ii) iv) lower-than-expected input costs, and (iii) higher-than-expected property sales.

Source: Kenanga Research - 27 Mar 2015