1H18 CNP of RM414.3m came in above our but within street’s expectations at 56%/52% of our/street’s full-year estimates. No dividends declared as expected. Upgrades FY18-19E earnings by 8-3%. Downgrade recommendation from OUTPERFORM to MARKET PERFORM with a marginally higher SoP-driven Target Price of RM5.50 (previously, RM5.45).

Above our expectation but within street’s. 1H18 CNP of RM414.3m came in above our but within street’s expectations, at 56%/52% of our/street’s full-year estimates. The positive variance was mainly due to strong billings from its property division driven by overseas projects as we had been conservative in our billings assumptions. No dividends declared as expected.

Results highlight. 1H18 CNP grew 26% YoY, underpinned by an impressive revenue growth of 44% driven by construction (+42%) and property (+65%) division. The improvement in construction division was due to higher work progress achieved for MRT2, while the improvement in property division was backed by better sales contributions from overseas and local projects, i.e. Horizon Hills, Robertson, Jade Hills, Gamuda Gardens and “twentyfive.7”. QoQ, 2Q18 CNP grew 4% backed by revenue growth of 7%, due to similar reasons mentioned above, coupled with further improvements in financing cost, which saw a reduction of 8%.

Outlook. Outstanding order-book comfortably stands at RM6.9b and management remains ambitious in securing mega infrastructure projects, i.e. MRT3 and High-Speed Rail PDP role with a collective contract size of RM90.0b. However, we note that even if they manage to bag either one of these two projects, we would only expect more significant profit contributions from FY2020 onwards. As for its property division, GAMUDA managed to rake in RM1.9b worth of sales in 1H18, bringing its unbilled sales to RM2.4b with 3-year visibility.

Upgrades earnings. Post results, we raised our FY18-19E earnings higher by 8-3%, as we factor in higher billings contribution from property division.

Downgrades to MARKET PERFORM. Following the adjustment in earnings, we raised our SoP-driven Target Price marginally higher to RM5.50 (vs. RM5.45 previously). However, we downgrade our call to MARKET PERFORM (from OUTPERFORM previously), as we believe that GAMUDA’s share price have recovered well from its previous low of RM4.58 back in 22 Nov 2017. Furthermore, while we have factored in GAMUDA’s potential in winning MRT3, we believe this is already priced in due to near to medium-term uncertainties arising from the upcoming General Election. At current level, GAMUDA is currently trading at FY18E PER of 17.9x, above its 5-year average.

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

Source: Kenanga Research - 26 Mar 2018