9M17 CNP of RM499.3m is within expectations, at 70%/71% 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 an unchanged SoP-driven Target Price of RM5.45.

Within expectations. 9M17 CNP of RM499.3m came in within expectations, making up 70% and 71% of our and street’s full-year estimates, respectively. Dividend of 6.0 sen/share was declared, bringing total dividend declared year-to-date to 12.0 sen/share as expected.

Result highlights. Its 9M17 CNP only saw a growth of 5% on: (i) revenue growth of 30%, (ii) lower financing cost of 2%, and (iii) improvements in operating margin by 1ppt to 12%. However, the growth in CNP is not as high as its revenue, predominantly due to higher effective tax rate of 17% (from 11% previously). The growth in revenue is driven by all of divisions; (i) construction (+28%), (ii) property development (+47%), and (iii) expressway & water division (+7%), due to the pick-up in work progress for the underground and elevated works for MRT2 in its construction division, better progress billings from Vietnam for its property division, while improvement in expressway & water division was due to toll rate hike. While its property division registered strong growth in revenue, we note that its pre-tax margins had dropped significantly to 11% (previously, 18%) due to high upfront costs incurred for its new projects and lower profitability from an overseas project. QoQ, its 3Q17 CNP growth of 3% were largely driven by similar reasons mentioned above.

Outlook. While its outstanding order-book stands comfortably at RM8.2b and management is targeting to secure RM10.0b worth of jobs from LRT3, Pan Borneo Sabah, and ECRL projects, they have commenced their first ever pre-cast factory with a capacity of 1.0m square meters to support its construction business, which management is targeting to bid for more PR1MA and PPA1M projects in the future with the hope that they are able to construct over 8,000 units of public housing over the next 3 years with its pre-cast technology. As for its property division, GAMUDA managed to rake in RM1.4b worth of sales in 9M17, 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 an unchanged Sum-of-Parts driven Target Price of RM5.45. At current levels, GAMUDA is currently trading at FY18E PER of 20.7x, 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 - 28 Jun 2017