Period

3Q15/9M15

Actual vs. Expectations

9M15 net profit of RM528.3m came in within expectations, making up 77% and 72% of our and consensus FY15 earnings estimates, respectively.

Dividends

Declared interim DPS of 6.0 sen. Cumulatively, GAMUDA has declared 12.0 sen DPS in FY15, in line with our expectation.

Key Results Highlights

3Q15 net profit down 12% QoQ and 10% YoY to RM160.4m no thanks to both property and construction divisions. For property, the segment’s PBT was down by 36% due to lower margins. PBT margins for property division declined by 4ppts QoQ and 7ppts YoY to 18% due to lower margins products recognized in 3Q15. As for the construction division, PBT was down by 29% QoQ and 40% YoY no thanks to lower margins in MRT1 tunneling jobs. The project has reached the final stage of the construction cycle where most of the works are subcontracted out, hence the low margins.

YTD, Gamuda’s net profit was marginally up by 3% mainly due to high base effect. Recall, last year, GAMUDA completed the acquisition of additional 30% stake in KESAS.

As at end-3Q15, the group has RM1.3b worth of orderbook, solely from MRT1. Note that we only expect GAMUDA to replenish its orderbook in FY16. As for property segment, the group fetched RM821.0m new sales as at 9M15, down 46% YoY. This makes up 82.1% of our property sales forecast.

Outlook

Near-medium term earnings outlook remains challenging due to the following: (i) construction orderbook and margins are depleting given that MRT1 is already at the tail-end of the project, (ii) slowdown in local property sector, (iii) significant contribution from MRT2 will only kick in towards the end of FY16, and (iv) even if GAMUDA secured the PDP of RM27b Penang Transport Master Plan (PTPM), the earnings impact could only be seen in FY17. (Refer overleaf).

Change to Forecasts

Unchanged.

Rating

Maintain MARKET PERFORM

Valuation

We reiterate our concerns on the group’s near-term earnings outlook. Hence all in, we maintain our SoPbased Target Price of RM5.29. Our TP 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/delay of MRT2 project

Another deadlock in SPLASH takeover deal

Higher-than-expected input costs

Lower-than-expected property sales

Source: Kenanga Research - 24 Jun 2015