1HFY22 CNP of RM330m came within our expectation but above consensus. 1HFY22 property sales of RM1.87b performed above expectation on strong local sales from its township developments. Consequently, we raised our sales assumption to RM3.7b (from RM3.2b). In light of the MRT3 project which will be awarded by year-end in which Gamuda has a strong chance to clinch the underground package, we raise our FY23E contract replenishment to RM7.5b (from RM5.0b). Post results, we raise FY23E earnings by 4%. Keep OP on higher SoP-TP of RM3.70 (from RM3.60).

Within our, but above consensus, estimate. 2QFY22 CNP of RM177.1m led 1HFY22 CNP to RM330m - within our expectation at 48% but above consensus’ at 55%. We believe the positive deviation against consensus is due to their conservative margin assumption for the construction segment which should continue to see strong contributions for the rest of the year as savings from MRT2 project gets recognised towards project completion. No dividends as expected.

Sales outperformed. 2QFY22 sales of RM1.0b led 1HFY22 sales to RM1.87b – above our/management’s target of RM3.2b/RM3.5b (at 58%/53%) respectively. The stronger-than-expected performance stemmed from stronger domestic sales from township developments at Gamuda Gardens, Gamuda Cove and Gamuda twentyfive.7. Consequent to this, management has raised their FY22E sales target to RM4.0b (from RM3.5b). Meanwhile, we are slightly more conservative compared to management and raise our sales assumption to RM3.7b as we anticipate that the absence of HOC and anticipated rate hikes could dampen sales momentum for the remaining two quarters ahead. Meanwhile, unbilled sales stood at a high of RM5.2b (3x cover).

Highlights. 2QFY22 CNP of RM177m increased 16% QoQ mainly on stronger property contributions (+103%) as its Vietnam operation normalised during the quarter vs. lockdowns experienced in 1QFY22. YoY, CNP was up 42% to RM330m on stronger bottom-line earnings from its construction (+50%) and property (+305%) divisions. Its construction division saw better margins (+4ppt) from recognition of cost saving as MRT2 nears completion while property division was stronger on easing of lockdown measures.

Management targets RM20b replenishment by FY23 (includes YTD wins of RM7.4b). Key prospective contracts to make up the target of c.RM12.6b include: (i) MRT3 underground package – RM10-12b, (ii) Penang South Reclamation Project – RM5b, (iii) Coff Harbour – c. AUD1.5b, (iv) Rasau Treatment Plant, and (v) other international contracts from Taiwan and Singapore. Consequent to the healthy pipeline of prospective contracts, we raise our FY23E replenishment to RM7.5b (from RM5b) – in line with management’s overall guidance. Note that our FY22E replenishment target stands at RM12.5b. Current construction orderbook stands healthy at RM10.4b.

Opportunity from MRT3. According to management, MRT Corp has indicated that all MRT3 works would be done by local contractors unless local contractors lack the expertise (i.e. system-related works). Assuming their stance remains unchanged, we deduce that Gamuda stands a high chance of securing the underground package as they are the incumbent MRT underground contractor with fully depreciated tunnel boring machines (from MRT2) providing them cost advantage.

SMART 2 in the works. With the recent severe floods experienced throughout Selangor, Gamuda has proposed a flood mitigation project (SMART 2) to the government. This project will comprise 22km of tunnels covering 5 key areas i.e. Taman Sri Muda, Shah Alam, Setia Alam, Bandar Klang and Taman Sentosa (which includes Bandar Puteri). The government has earmarked this project as a high priority project which could be funded through a PFI/deferred funding scheme. For now, no contract quantum has been disclosed.

Penang South reclamation EIA submission will be done by this month-end with outcome expected by July 2022 with works to commence in 4QCY22.

Keep FY22E numbers unchanged post results. Meanwhile, we raise FY23E earnings by 4% after imputing higher FY22E property sales of RM3.7b (from RM3.2b) and FY23E contract replenishment of RM7.5b (from RM5b). Keep OUTPERFORM with higher SoP-TP of RM3.70 post earnings adjustment. We like Gamuda’s international exposure and innovativeness to create its own jobs amidst the challenging replenishment outlook.

Source: Kenanga Research - 24 Mar 2022