KEY INVESTMENT HIGHLIGHTS

• Gamuda booked revenue of RM1.5b in 4QFY19, an impressive +23.7%yoy rise

• Construction revenue expanded by +5.9%yoy in the quarter, but earnings was lower

• Overseas projects remained a performing segment for its property division with presale numbers continued to outpace domestic by 2 to 1

• PTMP agreement could be signed as early as 4Q19

• Maintain NEUTRAL with revised TP of RM3.70/share

Gamuda booked revenue of RM1.5b in 4QFY19, an impressive +23.7%yoy rise compared to last year. Cumulatively, it worked out to RM4.6b for 12MFY19, a notable +8.3%yoy growth. In terms of core earnings, it reported RM706.1m in 12MFY19, a decline by -15.4%yoy. Despite the drop, the amount came in slightly ahead of our and consensus expectations at 107% and 105% of respective annual earnings forecasts.

Earnings normalized. The negative deviation was due to the vacuum left by SPLASH, whereby the group has stopped its recognition, translating to lower contribution from its Water & Concession segment. On that account, Gamuda posted -16.9%yoy lower net profits in 4QFY19 at RM110m compared to the same period last year.

During the quarter, construction revenue expanded by +5.9%yoy. However, its earnings came in lower due to the markeddown in MRT2’s contract value. In particular, the group’s construction segment only registered RM37.9m of earnings, that was -29.4%yoy lower. As of last reported, MRT2 job covers approximately 84% of outstanding orderbook, inclusive of Pan Borneo Sarawak and Marine Bridge, Taiwan projects. Prospectively, the group is backed by RM9.2b unbilled jobs to keep it busy in the next two years. We recall that a two to three-year visibility is considered within the industry average.

Overseas sales underpinned growth. Overseas projects were the performing segment, contributing two-third of the group property sales. It continues to support overall earnings, with presale numbers continued to outpace domestic by 2 to 1. Gamuda’s property darling was its Vietnam project with FY19 presales hit another record at RM1.9b (+35%yoy), well exceeding target of RM1.5b. Dubbed as Celadon City, it continues to drive outstanding Vietnam performance. While the group continues to focus on existing projects with the likes of Gamuda Gardens, twentyfive.7 and Gamuda Cove, we noted that management remains on the lookout for new overseas project to sustain sales.

PTMP to commence next year? It was evident that further arrangements need to be ironed out before the project can take off. Key issues seem to center on the funding structures, which are still pending for federal approval. While we recall that the PDP contract validity has been extended to February 2020, 4Q19 is the timeline management anticipate for the agreement to be signed. Subsequently, reclamation could start as early as 2H20 with key infra components (LRT, PIL) following shortly thereafter.

Acquiring rail company in Australia. Gamuda has acquired 50% equity stake in Martinus Rail, with few head agreements signed recently. We learned that the combined Gamuda/MR entity will bid for rail-based projects from next year onwards to take advantage of A$20b (~RM56b) addressable market for rail-based projects. The acquisition of MR is a good strategic fit and could be viewed positively in providing another steady and sustainable flow of projects overseas. We have yet to impute this into our valuation,

No change to estimates. We maintained our estimates, but we introduced our forecasts for the FY21.

Maintain NEUTRAL. Our SOP-driven TP worked out to RM3.70/share. This was based on 20% discount to RNAV/share, implying 14x PE to Gamuda’s FY21 EPS. The delays on PTMP and negotiation of highway takeover are issues that remain uncertain, which put investors on the sidelines. While these present downside risk, the possible return of shelved mega projects namely MRT3 and HSR are the likely catalysts for rerating.

Source: MIDF Research - 30 Sept 2019