GAMUDA’s 9M16 CNP of RM474.0m was inline making up 74%/75% of ours/consensus full-year estimates. 6sen dividend announced bringing total dividend declared for 9M16 to 12sen slightly below our expectations of 13sen. Outstanding orderbook and unbilled sales stand at RM8.2b and RM1.0b providing visibility for the next 3 years. Maintain MARKET PERFORM, unchanged SOP driven Target Price of RM4.67.

Within expectations. Its 9M16 CNP of RM474.0m which accounts for 74%/75% of ours and consensus full-year estimates were within expectations. In terms of dividend, GAMUDA announced a 6sen dividend in 3Q16 bringing 9M16 dividend declared to 12sen, which is slightly below our full-year expectations of 13sen as we would expect minimal to none dividend in 4Q16.

Profitability supported by concessions. Its 9M16 CNP weakened by 10%, YoY driven by softer contribution from two of its major divisions, i.e. construction and property. Its construction and property pre-tax profits slumped by 36% and 33%, YoY respectively. This is mainly due to the tapering of underground and elevated works for MRT1, whilst its property division was hit by a softer market back in Malaysia causing its margin to decline by 7ppt to 18%, which we believe is due to higher sales and marketing expenses in order to entice home buyers in purchasing their on-going projects. Likewise, its concessionaire business that makes up 53% of its 9M16 pre-tax profits saw a marginal decline of 2% despite higher revenue that increased by 7% as its margin compression of 9ppt which we believe driven by higher operational costs. On QoQ basis, the decline in CNP of 5% was largely due to similar reasons above, except that its concession business saw mild improvement revenue (+9%) and pre-tax profits (+4%).

Getting ready for execution. Currently, its outstanding orderbook stands comfortably at RM8.2b whereby MRT2 works is expected to commence soon as they already have site possession. That said, they also expect the remaining 6 civil packages for MRT2 to be award in the next 6-9 months. That said, they are still actively bidding for LRT3, Pan Borneo and Gemas-JB Double Track works. As for its property division, its unbilled sales stand at RM1.0b, whereas it only achieved RM575.0m worth of pre-sale for 9M16. However, management remains confident in achieving RM1.4b worth of pre-sales, backed by a strong demand from its recently launched residential project, i.e. GEM Residences in Singpoare, while its Vietnam project to see further improvements.

No changes in earnings and recommendation. We maintain our MARKET PERFORM call with an unchanged SoP-based Target Price of RM4.67, dragged by the uninspiring outlook of the property sector. However, we expect more construction-related news flow from the roll-out of KVMRT2 and Pan Borneo Highway. Our TP implies FY17E PER of 18.3x, which is inline with big caps’ Fwd. PER range of 16-18x.

Risks to our call include: (i) Delays in MRT1 construction progress, (ii) unexpected scrapping/delay of MRT2 project, (iii) another deadlock in SPLASH takeover deal, (iv) higher-than-expected input costs and (v) lower-than-expected property sales.

Source: Kenanga Research - 30 Jun 2016