1QFY16 results met our expectations. Maintain BUY with a slightly lower MYR5.15 TP (from MYR5.26, 17% upside). It is the best proxy to the buoyant construction sector given its dominant role in the MRT and PTMP projects. Investors should look beyond its near term earnings breather as its profit may pick up again from FY17F onwards.

In line. While Gamuda’s 1QFY16 (Jul) net profit of MYR161.2m was 4.9% higher QoQ, it came in 13.2% lower YoY, largely meeting our original forecast but slightly below consensus’ estimates.

FY16 a breather year? Meanwhile, the Klang Valley Mass Rapid Transit Line 1 (MRT1) has reached an overall 75% completion. With the full completion slated by July 2017 and its outstanding orderbook for this division standing at only MYR800m, we expect lower construction revenue in FY16F. Recall Gamuda was only awarded Project Delivery Partner (PDP) for the MRT Line 2 (MRT2) contract; the results of its tender for underground portion are expected to be known in Apr/May 2016. This is the same period when Gamuda plans to award a contract for the elevated portion, as the PDP. Therefore any revenue recognition from this project in FY16 is likely to be negligible. Separately, we have assumed the Penang Transport Master Plan (PTMP) project to hit the ground in 2HFY18, at the earliest. As for its property division, management has targeted MYR1.33bn worth of new sales in FY16F. We prefer to assume property sales at <MYR1bn considering: i) prolonged weakness in the property market especially in the Iskandar Malaysia region, and ii) its new property sales in FY15 was only MYR1.21bn.

Forecasts and risks. We are cautious on the timing of the commencement of work for the MRT2 and PTMP projects; as we forecast slower property sales for the remainder of FY16 and poor traffic numbers on its highways, we trim our FY16F-18F profit by 1.5% to 3.9%. Risks: i) delays and cost overruns in construction jobs, and ii) weak property sales.

Reiterate BUY. Despite expectations of near term weakness, Gamuda remains the best proxy to the buoyant construction sector given its dominant role in the MRT and PTMP project. Our TP is lowered slightly to MYR5.15 (from MYR5.26) after we adjust our SOP-based valuation. We advise investors to look beyond the near term earnings slowdown as its profit may pick up again from FY17F onwards. This report marks a transfer of coverage to Ng Sem Guan.

Financial Exhibits

Financial Exhibits

SWOT Analysis

Company Profile

Gamuda is primarily involved in construction, property development, operations of toll roads and production of treated water. It is the leading player in public infrastructure in Malaysia by virtue of its project delivery partner and tunnelling contractor roles in the construction of the Klang Valley MRT project.

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