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Monday, December 19, 2016

Gamuda - Beginning of Earnings Up-cycle

Gamuda - Beginning of Earnings Up-cycle

Author: sectoranalyst   |   Publish date: Mon, 19 Dec 2016, 11:54 AM 

Review

  • Gamuda’s 1QFY17 net profit of RM162.1mn came in within expectations, accounting for 20.3% and 22.6% of ours and street’s FY17 full-year estimates.
  • A first interim dividend of 6sen/share was declared, maintaining the same quantum last year.
  • YoY, 1QFY17 net profit improved marginally by 0.6% to RM162.1mn, despite revenue coming in 1.5% lower at RM504.9mn. Stronger performance by the construction division (PBT +20.2%) and concessions division (PBT +15.3%) was partially offset by the weaker contribution from its property division (PBT -20.5%). The slower property earnings was mainly due to lagging effect of sluggish property sales recorded in FY15. Meanwhile, the contractual toll rate hike for LDP effected in January 2016 boosted the concession earnings.
  • QoQ, the 6.6% growth in net profit was attributable to better property earnings (PBT +10.2%), higher concessions earnings (PBT +13.4%), lower finance costs (-28.3%) and lower taxation (-38.0%). However, construction PBT was 29.7% lower as the MRT line 1 construction activity tapered off as the project came to a tail end.

Briefing highlights

Construction

  • For MRT line 1, it has achieved 94% financial completion for both the underground works and the Project Delivery Partner (PDP) scope as at end-October 2016. It is on track to achieve overall completion by July- 2017 within budgeted cost. Gamuda’s outstanding order book stood at RM8.9bn (see Exhibit 1)
  • For MRT line 2 which has an estimated project cost of RM32bn, about 85% of the total project or 25 works packages valued at over RM27bn has been awarded. Remaining sizeable works packages are expected to be awarded within the next 6 months.
  • While MRT line 2 is still in initial stage, MRT line 3, which runs largely underground, is targeted to be rolled out in late 2018. The alignment studies are nearing completion.
  • On Penang Transport Master Plan, a railway scheme has been submitted to SPAD, while submission of EIA study targeted by Jan 2017.
  • Despite having sizeable outstanding order book in hand, Gamuda aims to add another RM3bn to RM4bn of new construction orders to its book. It is actively exploring opportunities in main packages of LRT line 3, Pan Borneo Highway in Sabah and Southern Double Track.

Property Development

  • The group recorded property sales of RM430m in 1QFY17. Unbilled sales jumped significantly from RM1.2bn a quarter ago to RM1.9bn. The management maintained the full-year sales target of RM2.1bn. Our FY17 property sales assumption is conservative and unchanged at RM1,800mn. FY17 sales will be supported by new launches of Kundang Estates (Dec 16) and Gamuda Gardens (Mar 17) and Twentyfive.7 in mid-2017, as well as sales in Vietnam and GEM Residence in Singapore.

Concessions

  • Currently, a final independent valuation is being carried out to value SPLASH. The negotiation on the disposal of SPLASH is in highly advanced stage with high chance of the disposal to be sealed by 2Q17. Management keeps its option open whether to pay special dividend post completion of the disposal.

Outlook

  • We believe this is the beginning of another earnings growth cycle after recording lower earnings in FY16. The growth is expected to be driven by higher contributions from the construction and property divisions as the construction of MRT line 2 gathers momentum, and higher recognition of property revenue resulted from strong property sales achieved in FY16. We expect the group’s earnings to pick up and surpass record earnings achieved in FY14.

Valuation

  • No change to our target price of RM5.62, based on unchanged 18xCY17 construction earnings, 14xCY17 property earnings and 16xCY17 earnings from toll road and water concessions. Maintain our BUY call on GAMUDA.
Source: TA Research - 19 Dec 2016

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