1Q17 CNP of RM162.1m is within expectations, making up 23% of both our and streets’ full-year estimates. A 6.0 sen dividend per share was declared as expected. There are no changes to our FY17-18E earnings. Maintain MARKET PERFORM with an unchanged Target Price of RM4.85.

Within expectations. 1Q17 CNP of RM162.1m came in well within expectations, accounting for 23% of both our and streets’ full-year estimates. It also declared a 6.0 sen dividend per share, within our full-year expectations of 12.0 sen.

Result highlights. GAMUDA managed to maintain flattish CNP growth of 1%, YoY for 1Q17 despite an 11% YoY drop in revenue, driven by improvements in pre-tax margins (+3ppt) to 19% due to: (i) improvements in construction margins as a result of cost savings from KVMRT1 project, and ( ii) lower financing cost (-12%).

QoQ, it registered 7% growth in CNP albeit a smallish top line growth of 2% due to: (i) vast improvement in associate and joint- venture contributions (+26%), and (ii) lower effective tax rate of 15% vis-à-vis 24% in 4Q16.

Execution years ahead. Currently, its outstanding order book stands comfortably at RM8.9b and management is targeting to secure RM4.0b worth of jobs in the next 12 months from LRT3, Pan Borneo Sabah, and Gemas-JB Double Track works. As for its property division, its unbilled sales stand at RM1.9b with 3- year visibility. As for the Splash takeover by the government, management remains hopeful for a resolution by 1QCY17 and they are willing to accept a marginal discount to its 1.0x book valuation at c.RM3.0b. While the sale of Splash might reduce its net gearing from 0.47x to 0.33x, GAMUDA will suffer the loss of earnings contribution from Splash of c.RM120.0m per annum.

No changes in earnings and recommendation. Post results, we make no changes to our FY17-18E core earnings.

Reiterate MARKET PERFORM with an unchanged Target Price of RM4.85. Our TP implies FY18E PER of 18.4x, which is in line with big caps’ Fwd. PER range of 16-18x.

Risks to our call include: (i) delays in MRT1 construction progress, (ii) unexpected 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 - 19 Dec 2016