Yesterday, GAMUDA made an official announcement that they and their JV partner - EVIA - had won a land tender from Singapore Housing Development Board for the development of EC in Anchorvale, Sengkang measuring 4.22 acre (for SGD318.9m). Neutral on the land bank replenishment as it has a minimal impact to property RNAV. Maintain OP, with an unchanged SoP-driven TP of RM4.30.

Closest bid in history. Yesterday, GAMUDA made an official announcement on their successful bid (via a JV with Evia Real Estate (8) Pte Ltd) for the development of Executive Condo (EC) project namely Anchorvale Cresent in Singapore for a total consideration of SGD318.9m or RM963.0m. The bid was one of the closest wins in history, as GAMUDA and its JV partner won the bid by a slim differential sum of only SGD899.0 above the second highest bidder CNQC Realty (Treasure) Investment Pte. Ltd.

Long-term positive. We are long-term positive on GAMUDA’s move into the EC space in Singapore as the demand for EC tend to be more resilient as it falls under the HDB scheme. The project land size measures about 4.22 acres with a gross plot ratio of 3.0x allowing GAMUDA to have a gross developable space of 553,393.1sf. Conservatively, we assume that the project would have an estimated GDV of c.SGD600.0m premised on an average selling price of c.SGD1,400 psf on the total net developable space of 415,044sf. We would expect the launch for the project to take place in 2020 earliest. Currently, there are no details on the joint-venture structure but assuming 30-50% stake in the project, GAMUDA would need to fork out SGD95.7-159.4m or RM287.0-478.3m bumping up its net gearing of 0.55x (as of 3Q18) to 0.59-0.62x, which is still within our comfortable range of 0.5-0.6x.

Outlook. Its outstanding order-book and property unbilled sales comfortably stand at RM6.4b and RM2.2b providing them another 2-3 years of visibility. As of 9M18, property sales stood at RM2.6b and management remains ambitious in achieving its target of RM3.5b through sales from overseas projects, i.e. in Vietnam.

Earnings unchanged. There are no changes to our FY18-19E earnings, as we only expect contributions from the development to kick in earliest by FY2024 as the recognition for EC projects is based on completion method.

Maintain OUTPERFORM. We maintain our SoP-driven Target Price of RM4.30 as the replenishment in GDV has a minimal impact to our SoP valuation. We pegged our construction multiple at 14.0x, and property RNAV discount at 65%, while keeping our OUTPEFORM call as we believe that current levels are attractive given that it is trading at FY19E FD PER of 11.2x which is below its -1SD levels and we believe that GAMUDA would be able to weather through the short-term uncertainty in job prospect given that they are the leader in the construction industry in Malaysia coupled with the resolution of SPLASH issue.

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

Source: Kenanga Research - 19 Sep 2018