INVESTMENT HIGHLIGHTS

• Results came in line with ours and consensus’

• Earnings imbued by on-track progress billings

• Maintain our earnings forecasts for FYE18/FYE19

• Upgrade to BUY with an adjusted TP of RM3.70 per share

9MFY18 Earnings mixed results. Gamuda’s 9MFY18 earnings of RM614.9m (+23.2%YoY) registered a positive accounting for a 76.0% and 76.0% of ours and Street’s estimates. Its 9MFY18 earnings are supported by strong engineering and construction PBT from RM152.2m in 9MFY17 to RM229.2m in 9MFY18 (+50.6%YoY).

Earnings imbued by on-track progress billings. The healthy result is due to on-track progress billings of Pan Borneo (Pantu-Btg Skrang, 25.0% progress) and Underground Works MRT Line 2 (31.5% progress). The on-track development is much welcomed news giving a potent shot of optimism for Gamuda illustrating its forte in engineering and construction. In so far, we are not predicting any hiccup pertaining to its underground work from Bandar Malaysia to Chan Sow Lin station as the project team have the necessary experience during the tunnelling of SMART Tunnel. This is due to the karstic limestone and cavernous soil factor of Kuala Lumpur

Maintain our earnings forecasts for FYE18/FYE19. We maintain our earnings assumption for FYE18/FYE19 on the basis of Gamuda’s; a) an estimated unbilled orderbook of RM12.8bn, b) strong pickup in property sales in Singapore which we have anticipated in FY2016 and Celadon City, Vietnam and steady contribution from c) concessions asset. We are anticipating positive news from Penang Transport Masterplan which will impact Gamuda’s earnings trajectory. Our channel checks reveal that the projects under PTMP will mostly pull through thus potentially giving a potent shot to Gamuda’s orderbook by another +20.0%.

Recommendation. Therefore, we upgrade to BUY with an adjusted target price of RM3.70 per share rolling over FYE19’s EPS of 11.9sen to our mid-range PER of construction sector target of 12x due to the grim backdrop of the construction sector and taking cognizant of regional negative sentiments for mid-term outlook.

Source: MIDF Research - 28 Jun 2018