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Saturday, March 25, 2017

Gamuda (BUY) - No surprises at the mid-point

Author: HLInvest   |   Publish date: Fri, 24 Mar 2017, 11:09 AM 


Results

  • Gamuda reported 2QFY17 results with revenue of RM854m (+69% QoQ, +62% YoY) and earnings of RM166m (+3% QoQ, +4% YoY).
  • Cumulative 1HFY17 earnings of RM328m remained relatively flat YoY (+2%).

Deviation

  • 1H earnings accounted for 48% of our full year forecast (consensus: 47%) which is within expectations.

Dividends

  • No dividend was declared for the quarter.

Highlights

  • MRT2 largely dished out. MRT1 is 98% complete with Phase 1 already operational since Dec 2016 and Phase 2 is on track for opening in July 2017. For the MRT2, all the 10 viaduct packages have been awarded while the remaining smaller packages (e.g. stations, depot and noise barriers) will be progressively awarded between now and 3Q17.
  • Upside to job wins? Gamuda’s orderbook is now at a record high RM8.3bn (ex. PDP), implying 11x cover on FY16 construction revenue. Management previously guided that it aims to add another RM3-4bn to its orderbook from 2017- 2018 via jobs such as Gemas-JB Double Track, LRT3 and Pan Borneo Sabah. This could potentially be much higher at RM10bn should the East Coast Rail Link (ECRL) take off where Gamuda can leverage on its experience with the completed Northern Double Track (RM12.5bn).
  • Good recovery for property sales. Property sales amounted to RM783m in 1H, doubling YoY. Management believes that this momentum can be sustained given new launches such as Kundang Estates (Dec 2016) and Gamuda Gardens (March 2017). Unbilled sales of RM2bn imply a healthy cover of 2.7x on FY16 property revenue.
  • Nearing a splash. Negotiations between the Federal and State governments are at an advanced stage for the disposal of Splash (40% owned by Gamuda). A final independent valuation is ongoing and conclusion of the deal is expected in 2Q17. Assuming 1x BV is paid (RM3bn), Gamuda’s stake in Splash would be worth RM1.2bn (50 sen per share) which could be partially redistributed to shareholders.

Risks

  • Weak domestic property sales.

Forecasts

  • Unchanged as the results were inline.

Rating

Maintain BUY, TP: RM5.74
  • Gamuda is poised to resume its earnings upcycle in FY17 and potentially hitting a record high in FY18. It is also a key play to ride on the upcoming mega rail projects.

Valuation

  • While there are no changes to our estimates, our SOP based TP is raised slightly from RM5.67 to RM5.74 as we impute a 1x BV valuation for Splash (previously 0.8x). Our TP translates to FY17-18 P/E of 20.5x and 17.7x respectively
Source: Hong Leong Investment Bank Research - 24 Mar 2017

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