1QFY20 CNP of RM173.1m came in within expectations, accounting for 30%/27% of our/consensus full-year estimate. An interim dividend per share of 6.0 sen was declared. Pending the release of details on the Penang Transport Master Plan (PTMP), we are keeping our earnings forecasts. Maintain MP call as we tweak our SoP-based TP to RM3.90 (from RM3.75).

Within expectations. 1QFY20 CNP of RM173.1m (flat YoY) accounted for 30%/27% of our/consensus full-year forecasts, which we deem to be within expectation. An interim DPS of 6.0 sen was declared, matching the dividend in 1QFY19.

Results’ highlight. By segments, on a YoY basis, the overall performance was lifted by better property earnings (up 48% at the pretax profit level), which mitigated the weaker contributions from construction (-16%) and concessions (-13%). Essentially, the property division was boosted by stronger contributions from Vietnam (which made up most of the RM509m worth of properties sold in 1QFY20). On the other hand, the construction division was affected by slimmer PBT margin (6.7% in 1QFY20 vs. 8.9% in 1QFY19) mainly arising from the reduction in MRT Line 2 contract value following the government’s decision to change the project structure from PDP to single turnkey contractor while the concession segment was affected by slightly lower traffic and plant rehabilitation cost provision in Gamuda Water. QoQ, pretax profit contributions from construction more than doubled (on account of higher revenue recognition and margins recovery) which compensated for the property earnings decline.

Outlook. In terms of timeline, the two key events to look out for will be: (a) the disposal of its expressway concessions for an equity value of RM2.36b (Gamuda’s share). The signing of the definitive agreement is now expected in Jan 2020 (from end-Dec 2019 previously) and the EGM to seek shareholders’ approval will likely be held in Mar 2020 with the deal completion targeted in Apr/May next year. Following which, a special dividend could be paid out in 4Q20; and (b) PTMP, where the PDP agreement is scheduled to be inked in Jan 2020. Following which, the LRT project (which has already secured a federal government guarantee for its bond funding) and land reclamation works for the first of three islands under PTMP are expected to take off in 2HCY20. Meanwhile, the timing for the PIL highway commencement will depend on financing availability.

Earnings maintained. No change to our earnings estimates. Total existing order-book which stood at RM8.6b as of Oct 2019 after securing contracts to build a marine bridge in Taiwan (RM0.4b) and a bus depot in Singapore (RM0.4b) – will underpin forward earnings.

Tweaking our TP to RM3.90 (from RM3.75) as we re-jig our SoP valuation model (please see table overleaf). Pending the release of details on PTMP (such as the PDP fee, project values and tenures etc), there is potential upside to our TP. Our on-the-back-of-the-envelope calculation suggest that Gamuda may potentially rake in a share of profit of RM65m in the first year based on preliminary assumptions including project value of RM8.4b for LRT, RM7.5b for PIL highway and RM8b for Island A reclamation works to be spread over 8-10 years. Applying a PER of 16.1x (1SD above its historical mean), this could translate to an incremental value of 42.0 sen/share. Maintain MARKET PERFORM for now.

Risks to our call include: (i) earlier/delayed construction progress of MRT2 project, (ii) lower/higher-than-expected input costs, and (iii) higher/lower-than-expected property sales.

Source: Kenanga Research - 16 Dec 2019