KUALA LUMPUR (June 10): AmInvestment Bank Research has cut its net profit forecast for Gamuda Bhd to better reflect the direct and indirect impact of the Movement Control Order (MCO) and Conditional MCO on the company's businesses.

The research house has revised downward earnings projections for Gamuda, lowering by 7% to RM595.8 million for the financial year ending July 31, 2020 (FY20) and reducing by 4% to RM552 million for FY21.

"We expect Gamuda's 9MFY20 (for the financial year ending April 30, 2020) results, due out by the end of the month, to come in at RM440 million to RM450 million at the net level. This will translate into a 14% to 16% y-o-y (year-on-year) decline versus a RM521.2 million net profit registered in 9MFY19, with the key culprit being the six-week direct and indirect impact of the MCO and Conditional MCO during the quarter on construction activities, property sales and toll road collections," said AmInvestment Bank Research in a note today.

Going forward, the research house believes the government has very limited room for fiscal manoeuvre given the still elevated national debt and the still depressed oil prices (that will hurt petroleum revenues).

That means the government is unlikely to roll out new public infrastructure projects in a major way over the short term, it said.

AmInvestment Bank Research has downgraded Gamuda to "underweight" from "hold" previously on rich valuations after recent run-up in its share price, with Gamuda's forward price-earnings at 16 times to 18 times, which it believed the market has priced in a blue-sky scenario.

AmInvestment Bank Research added market expectation on Gamuda is "too optimistic" given the unfavourable news flow lately, such as deferment of the KL-Singapore high-speed rail project to Dec 31, 2020 from May 31, 2020, Mass Rapid  Transit Line 3 not being included in the newly announced short-term Economic Recovery Plan (Penjana) and no indication from the new government on the RM2.36 billion toll concession disposal deal signed between the previous administration (Pakatan Harapan-led government) and Gamuda.

Nonetheless, the research house has raised its fair value to RM3.02 from RM2.78 previously, after it valued Gamuda's construction business at 12 times forward earnings against 10 times forward earnings previously. It said this was to reflect a reduced market risk premium as investors globally have turned risk-on optimism on the economy reopening.

At 10.30am, Gamuda's share price was unchanged at RM3.87, with some 216,000 shares exchanging hands. The stock has risen some 55% from its recent low of RM2.49 from March 19.