1H17 CNP of RM328.4m is within expectations, at 46%/47% of our/streets’ full-year estimates. A 6.0 sen dividend/share declared as expected. No changes to our FY17-18E earnings. Maintain MARKET PERFORM with a higher SoP-driven Target Price of RM5.45 (previously, RM4.85).

Within expectations. 1H17 CNP of RM328.4m came in within expectations, making up 46% and 47% of our and streets’ full- year estimates, respectively. Dividend of 6.0sen/share was declared as expected.

Result highlights. Its 1H17 CNP only saw a growth 2% premised on: (i) revenue growth of 11%, (ii) lower financing cost of 6%, and (iii) improvements in operating margin by 3ppt to 13%. The growth in revenue is driven by all of its divisions; (i) construction (+4%), (ii) property development (+25%), and (iii) expressway & water division (+14%), due to the pick-up in work progress for the underground and elevated works for MRT2 for its construction division, better progress billings from Vietnam for its property division, while improvement in expressway & water division was due to toll rate hike. That said, tax paid surged by 20% due to higher effective tax rate of 17% vis-à-vis 11% back in 1H16. QoQ, its 2Q17 CNP growth of 9% was driven by similar reasons mentioned above.

Execution years ahead. Currently, its outstanding order book stands comfortably at RM8.3b and management is targeting to secure RM4.0b worth of jobs from LRT3, Pan Borneo Sabah, and Gemas-JB Double Track works. As for its property division, GAMUDA managed to rake in RM783.0m worth of sales in 1H17, which represents 103% increase from 1H16, bringing its unbilled sales to RM2.0b with 3-year visibility.

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

Reiterate MARKET PERFORM with a higher Sum-of-Parts driven Target Price of RM5.45 (previously, RM4.85) after we lowered our property RNAV discount to 45% (previously, 68%) which is close to our overall sector average discount of 47% due to the improved sentiment on property counters which is in line with the FBMKLCI. At current level, GAMUDA is currently trading at FY18E PER of 20.0x, above its 5-year +1.0SD levels.

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 - 24 Mar 2017