INVESTMENT HIGHLIGHTS

• The group recorded revenue growth of +17.3% in 1QFY19

• Overall revenue was heavily weighted by construction segment, at a flat quantum from last year’s period

• Revenue from property segment fell -12.2%

• Dividend of 6sen/share declared

• Maintain BUY with unchanged TP of RM2.89

The group’s revenue reported growth of +17.3%yoy, amounting to RM903.9m in 1QFY19. Taking into account the revenue recognized from JV, the quantum however showed a marginal drop of -4.0%yoy. This has led the group’s profit to slip -21.4%yoy to RM172.0m in 1QFY19. Altogether, it formed 26.2% and 27.5% of ours and consensus’ full year estimates.

The overall revenue contribution was heavily weighted by construction segment at RM1.0b (-0.2%yoy). This was supported by stable billings recognition of outstanding order book to date. Despite the steady work progress, we noted that PBT level fell -8.6%yoy to RM91.7m steered by the earnings decline from KVMRT2 package. Whist the package is expected to contribute earnings positively; we believe that compression in margin is likely to remain due to the recent alteration of contract.

Revenue in the property segment fell. During the same period, property segment recorded the biggest drop in revenue of -12.2%yoy to RM447.0m. Accordingly, this translates directly to a PBT quantum of RM 40.1m, a drop of -13.8%yoy. The property market has been rather soft during the quarter, which has led to the negative earnings deviation. Moving forward, management’s optimistic view is buoyed by the prospect of overseas projects which have so far maintained a trend of strong take up rates. We recall that 70% of Gamuda’s property earnings were generated by its overseas projects. Two notable mentions of overseas projects are Gamuda City located in Hanoi and Celadon City in Ho Chi Minh City.

Dividend declared. The management has declared an interim dividend of 6sen/share of financial year ending 31 July 2019. This amount paid out is about 15% of our FY19 earnings estimates. For the full year, we are expecting another 6sen/ share of dividend to give a total of 12sen/share.

Earnings forecast unchanged. We made no changes to our earnings forecasts since the results met our estimates.

Maintain BUY with unchanged TP of RM2.89. Gamuda’s outstanding order book and unbilled sales (provides about 3.0x times earnings visibility) to lend enough supports in the near to medium term. On the property segment, we remain optimistic on its medium term outlook predicated on 1) the completion of construction works at 661 Chapel Street, Australia, and 2) the robust sales of property projects in Vietnam. Our TP of RM2.89 is derived from PE multiples of 11x, which we believe is fair given the lacklustre sentiment on the sector. At this juncture, we think the share price is trading at attractive levels which provide an opportunity to accumulate.

Source: MIDF Research - 17 Dec 2018