Period

4Q15/FY15

Actual vs. Expectations

FY15 core net profit of RM682.2m came in well within expectations, making up 99% and 98% of our and consensus full-year estimates, respectively.

Dividends

No final dividend declared as expected.

Key Results Highlights

YoY, FY15 core net profit of RM682.2m saw a slight decrease by 4% despite a marginal growth of 3% in revenue, due to margin compression from its two core divisions, i.e. construction and property as most of its higher margin projects have reached the tail-end stage, i.e. MRT1 underground tunneling package. That said, its financing cost also saw a sharp increase by 72% to RM133.1m in tandem with its net gearing of 0.43x rising from 0.29x previously due to acquisition of landbanks.

QoQ, 4Q15 core net profit declined by 4% to RM153.7m despite a strong revenue growth of 21% due to similar reasons above, whereby the main drag was from the margin compression from its construction division, which saw its pre-tax margin compressed by 3.4ppt to 4.3% as its higher margin tunnelling works were completed.

Outlook

In the briefing, management highlighted that they remained hopeful on the potential sale of SPLASH at 1.0x book value of c.RM2.8b as the state government is committed in resolving Selangor’s water issue. However, management highlighted that there will be no special dividend from the proceeds of the potential sale of SPLASH as the group will deploy the proceeds for its PTPM project in Penang. That said, GAMUDA has proposed a rights issuance of warrants to raise up to c.RM100m at an issue price of RM0.25 for each Warrant on the basis of one warrant for every six existing ordinary shares that would potentially raise RM2.0b over the next 5 years assuming all the warrants are converted.

GAMUDA’s near-medium-term earnings outlook remains unexciting due to: (i) shrinking construction orderbook and margins given that MRT1 is already at the tail-end, (ii) slowdown in local property sector, (iii) significant contribution from MRT2 will only kick in towards the end of FY16, and (iv) the RM27.0b Penang Transport Master Plan (PTPM) is only expected to kick off earliest by 2017.

Change to Forecasts

Post-briefing, we revised our FY16E core net profit downwards by 8.5% to RM636.8m as we tweaked our construction margins lower, while we introduced our FY17E core net profit of RM709.7m.

Rating

Maintain MARKET PERFORM

Valuation

We revised our SoP-based Target Price lower to RM4.67 from RM5.05 following our reduction in construction earnings, and the full dilution impact from the newly proposed right issuance of warrants. Our TP implies FY16E PER of 16.3x, in line with big caps’ fwd-PER range of 16-18x.

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 - 29 Sep 2015