• 6FY17 results disappointing

• Slower momentum still lingers in 6MFY17

• Key drivers would continue to be construction segment

• Nonetheless, we downgrade our recommendation to NEUTRAL with TP of RM5.50 per share

6FY17 earnings disappointing. Despite Gamuda’s 6MFY17 PATAMI came in higher at RM1.35bn (30.6%yoy) reflecting strong recovery from all key segments. Its 6MFY17 cumulative earnings was rather disappointing, meeting only 40% and 47% of ours and Street’s expectations of full year forecasts respectively.

Slower momentum continued again in 6MFY17. Earnings momentum is overdue with net profit chalking up only RM328.4m (2.2% % YoY). The compression in bottom line was largely due to the fallow period of project awards. In contrast, property division’s revenue bucked the trend by growing from RM359.3m in 6MFY16 to RM515m in 6MFY17 (43.3%yoy) driven by sales pickup from Gamuda and Celadon City in Ho Chi Minh. (We have reasoned (29.9.2016) that property sales from Vietnam will make a comeback).

Key drivers would continue to be construction segment but property will make a comeback. We are expecting our RM2.0bn target of orderbook replenishment to be met this year from LRT3 and Gemas-JB double tracking projects. Hence, we make no changes to our earnings estimates. Having said that, we reckon that overseas property sales from Gem Residences in Toa Payoh, Singapore and 661 Chapel Street, Melbourne project will make a comeback. We are expecting that the projects will contribute c.RM81m to our earnings forecast this year.

Recommendation. We downgrade our recommendation to NEUTRAL with a TP of RM5.50 per share based on sum-of-parts valuation (SOP) supported by prospective PER of 18x which is on the higher end of our big-cap construction 14x-19x PER range. The change in our recommendation is reflected from the surge of Gamuda’s share price (+11.2%YTD).

Source: MIDF Research - 24 Mar 2017