Period

2Q16/1H16

Actual vs. Expectations

1H16 net profit of RM321.3m is within expectations, accounting for 50% of both our and streets’ full-year estimates.

Dividends

No dividend was declared, as expected.

Key Results Highlights

YoY, 1H16 net profit was down by 13% in tandem with the decrease in revenue (-7%), coupled with pre-tax margin compression of 3ppt to 18%. The slump in revenuewas due to lower billings from both its construction and property development division. That said, margin compression in its construction division by 2ppt to 6% was due to completion of its tunneling works in the previous year, while the decline in property development pre-tax margins from 25% to 18% could be driven by higher marketing costs due to a slower property market.

QoQ, GAMUDA still managed to register a marginal decrease in net profit of RM160.1m (-1%) despite a sharp decline in revenue (-23%) as earnings were lifted by its concession division, which saw 7% improvements in pre-tax profit as a result of improvement in pre-tax margin by 4ppt to 93%. That said, the reduction in finance cost (-3%) and minority interest (-15%) were also contributing factors to the mild decline in earnings.

Outlook

GAMUDA’s outstanding orderbook stands at RM600m, which was due to the transition from MRT1 to MRT2. However, management is hopeful that MRT2 tunneling jobs are around the corner pending announcement from MRT Co. and they are hungry for more construction jobs and will be actively participating in LRT3, Pan Borneo, and Gemas-JB Double Track works.

Change to Forecasts

Unchanged.

Rating

Maintain MARKET PERFORM

Valuation

We maintain our MARKET PERFORM call with an unchanged SoP-based Target Price of RM4.67, mainly due to the uninspiring outlook of the property sector. However, we expect more constructionrelated news flow from the roll-out of KVMRT2 and Pan Borneo Highway.

Our TP implies FY16E PER of 17.4x, which is inline with big caps’ Fwd. PER range of 16-18x.

Risks

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 - 25 Mar 2016