FY18 CNP of RM818.4m came within expectations, at 102% of our/consensus full-year estimates. No dividend declared, but full-year dividend of 12.0 sen is inline. Reduce FY19E CNP by 4% and introduce FY20E CNP of RM838.0m. Maintain OUTPERFORM with an unchanged SoP-driven Target Price of RM4.30.

In line. FY18 CNP of RM818.4m came within expectations, making up 102% of our/consensus full-year estimates. No dividend declared; within our expectations as GAMUDA normally declares dividend in 2Q and 3Q while full-year dividend of 12.0 sen is in line.

Results highlight. FY18 NP fell 15% YoY, due to one-off impairment of RM304.4m arising from the disposal of SPLASH to the Selangor state government. However, FY18 CNP (excluding above mentioned impairment) registered growth of 17% underpinned by an impressive revenue growth of 32%, driven by construction (+56%) and property (+22%) divisions. 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 i.e. Vietnam and Singapore. QoQ, 2Q18 CNP was flattish with 1% growth despite registering lower revenue (-2%), attributable to lower tax (-9%).

Outlook. Compared to a quarter ago, management was relieved that long standing issue, like SPLASH, is finally being resolved despite being less bullish with the medium-term outlook in the construction sector as they are working closely with the government in reviewing MRT2 cost of which the reduction could range between RM5.0-8.0b. However, management remains hopeful given that the government is determined to minimize the participation of foreign contractors, which will benefit local players in the longer run. Positively, its outstanding order-book and property unbilled sales comfortably stands at RM6.0b and RM2.3b, respectively, providing another 2-3 years of visibility. As of FY18, property sales stood at RM3.6b, surpassing management’s target of RM3.5b through sales from overseas projects, i.e. Vietnam.

Earnings revised. Post results, we toned down our FY19E core earnings by 4% on house-keeping on our earnings model following the FY18 results as we fine-tuned our assumptions for its associates and introduce our FY20E CNP of RM838.0m. There are no changes to our FY18-19E earnings.

Maintain OUTPERFORM. Despite the uncertain outlook in the construction sector with minimal contract flows in the near-term, we maintain our OP call on GAMUDA with an unchanged SoP-driven TP of RM4.30. We believe that current share price level is attractive, trading at FY19E FD PER of 10.0x, which is at its 5-year -2SD level, and also we believe that GAMUDA would be able to weather through this short- term uncertainty in job prospects given that they are the leader in the construction industry in Malaysia. Our valuation model ascribed construction multiple of 14.0x, and property RNAV discount of 65%.

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

Source: Kenanga Research - 01 Oct 2018