3QFY21 CNP of RM142m brought 9MFY21 CNP to RM374m – below expectations in anticipation for a weaker 4Q arising from the numerous MCOs. YTD property sales of RM2.2b is broadly inline as we expect 4Q to be driven by Vietnam. No dividends disappointed expectations. Trim FY21E earnings by 14% and reiterate OP with lower SoP-TP of RM3.90 (from RM4.17) post rollover in valuation.

Below expectation mainly due to FMCO. 3QFY21 CNP of RM142m

(+15% QoQ; +253% YoY) lifted 9MFY21 CNP to RM374m (-4% YoY) accounting for 70%/69% of our/consensus full-year estimates. This is deem below our expectation as we expect the MCO 3.0 and FMCO imposed in May and June to affect its: (i) construction and property progress billings, and (ii) tolled highways’ traffic flows. The absence of an anticipated 6.0 sen dividend also disappointed expectations. Note that Gamuda typically declares dividends in the 1st and 3rd quarters of its financial year.

Meanwhile, 3QFY21 property sales of RM0.7b brought 9MFY21 property sales to RM2.2b – broadly within our/management’s target of RM3.3b/RM3.5b. We expect Vietnam to drive sales in 4QFY21.

Highlights. 3QFY21 CNP of RM142m increased 15% QoQ mainly due to stronger property contributions (+4.3x) from Vietnam as building permits for Celadon City which were previously backlogged have been approved – allowing Gamuda to recognise the progress completion this quarter. By the same reason, 9MFY21 CNP was marginally lower, 4% YoY, as Celadon City’s unrecognised profits in 1HFY21 had caused property contributions to slump 36% - overshadowing the better performance at its construction and concession divisions.

Three key updates. Over in Australia, Gamuda-BMD has lost out in its bid for the AUD2.6b M6 motorway project. That said, we are still optimistic that Gamuda will secure at least one of the two outstanding tenders there:- the Sydney Metro West project (by 4QCY21) and the Sydney Airport Link (by 4QCY21/1QCY22). This is because these two tenders have similar technical requirements with the Malaysian MRT project where Gamuda can use their existing TBMs for those projects. In addition, their JV partners for these two tenders i.e., John Holland and Laing O’Rourke are also more experienced and larger in size as compared to BMD (Gamuda’s partner for the M6 tender).

Secondly, the MRT3 tender which was earlier targeted for Aug 2021 will likely be delayed by 2-3 months amidst the FMCO with some changes in plan as a new chairman for MRT Corp has been appointed in May. Lastly, the PSR commencement is now delayed to Aug 2021 (from May) as Gamuda works towards obtaining the Environmental Management Plan.

As of 2QFY21, outstanding order-book stood at RM4.9b, mainly comprising KVMRT2 (RM3.0b) which would continue to drive construction earnings till early FY22. Meanwhile, its order-book is poised to be bumped up by RM5b (from PSR land reclamation works) pending the finalization of JV agreement between Penang state government and SRS.

Trim FY21E earnings by 14% to cater for the FMCO impact. Nonetheless, we keep FY22E numbers unchanged.

Maintain OUTPERFORM with lower SoP-based TP of RM3.90 (from RM4.17) as we remove M6 from our SoP valuations and roll valuation base year forward to FY22E for the construction segment. The drop in TP post rollover is due to the lower construction contributions in FY22E as MRT2 contributions will come off upon its completion while the PSR project will gradually take time to pick up pace.

Source: Kenanga Research - 25 Jun 2021