KEY INVESTMENT HIGHLIGHTS

• Gamuda reported RM1.1b worth of revenue in 1QFY20

• 63.5% revenue derived from construction division.

• Property earnings grew +36.4%yoy in 1QFY20, backed by +18.6%yoy increase in revenue.

• PTMP secures Federal financial assistance.

• Toll highway disposal in final stages and cabinet approval has been obtained.

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

Gamuda’s revenue upped +21.2%yoy, to register RM1.1b in 1QFY20. PATAMI was recorded at RM173.6m, higher by +0.9%yoy from the same period last year. However, the net profit margin deteriorated by -3.2ppts(yoy) in 3MFY20. Consequently, earnings accounted 27% and 24.6% of our and consensus full year estimates respectively. During the period, interim dividend was declared at 6sen/share.

In the quarter, construction segment made up 63.5% of total revenue. This division reported RM1.1b (+10.8%yoy) of revenue but only registered RM67.24 of net profit that was -6.8%yoy lower. Moving forward, things to look out for are further developments on PTMP with LOA validity set to expire by end-February 2020. Our understanding is that further finalization is already at its tail-end, leading us to believe the signing of PDP agreement could possibly materialize soon. Positively, we noted that federal has agreed to guarantee State bonds for LRT and considering several options for reclamation funding. In Gamuda’s words, the works on both projects are expected to commence in 2HY20. In the near term, earnings continue to be supported by the group’s unbilled orderbook of RM8.6b, giving visibility for the next three years.

Property earnings grew +36.4%yoy in 1QFY20, backed by +18.6%yoy increase in revenue to RM530.09m. The stronger performance was due to the margin expansion from the overseas project. The biggest contributor of overseas sales were (1) Celadon City in Ho Chi Minh City and (2)Gamuda City in Hanoi. As of this period, Gamuda has sold RM509 million worth of properties. Domestically, local presales were underpinned by Horizon Hills, Gamuda Cove, Gamuda Gardens and twentyfive.7. It is also worth mentioning that Gamuda Cove has gained traction in recent months following the opening of its dedicated access road, the ELITE highway’s interchange connecting directly to Gamuda Cove in September 2019.

Maintain NEUTRAL. We maintain our earnings forecast as earnings came in within our expectation. Our TP of RM3.70 was arrived based on SOP-driven valuation. This was based on 20% discount to RNAV/share, implying 14x PE to Gamuda`s FY21 EPS

Source: MIDF Research - 16 Dec 2019