(Oct 3, RM3.33)
Maintain hold with an unchanged target price (TP) of RM3.60 per share: Financial year 2018 (FY18) core earnings growth was supported by higher construction work recognition and record property presales of MYR3.59 billion in FY18. Our FY19E-FY20E earnings are tweaked upwards by 2%-3% after including the contribution from its new property projects. However, downside to our forecasts could come from the scaling down of the Klang Valley Mass Rail Transit (KVMRT) 2. Our revalued net asset value-based TP is unchanged after updating for latest property gross development value, lower construction order book of RM6 billion (end-July 2018), sale value of Syarikat Pengeluar Air Sungai Selangor (Splash) and settlement sum for Gamuda Water outstanding receivables.
Fourth quarter for financial year 2018 (4QFY18) core net profit of RM203 million (+1 y-o-y/q-o-q) brought FY18 core earnings to RM818 million (+17% y-o-y), meeting 98%/102% of our/consensus full-year forecasts. 4QFY18/FY18 headline earnings recognised a one-off non-cash impairment of RM304.4 million from the disposal of Splash and Gamuda Water (GW). The record core earnings in FY18 was driven by both construction and property segments which reported stronger profit before tax (PBT) of RM394 million (+27% y-o-y) and RM281 million (+17% y-o-y) respectively. Property presales of RM3.59 billion in FY18 (+51% y-o-y) also exceeded its initial target of RM3.5 billion on the back of stronger overseas sales. Gamuda is keeping to their RM4 billion (+12% y-o-y) presales target for FY19.
Splash Holdings has formally entered into a conditional share purchase agreement with Air Selangor Sdn Bhd to dispose of its entire equity stake in Splash for a total RM2.55 billion divided into RM1.9 billion of upfront payment and balance RM650 million to be received in nine annual instalments (first instalment a year later) plus 5.25% per annum interest. Gamuda has recognised the disposal loss of RM300 million in 4QFY18, lower than our estimated RM396 milllion (based on its 40% stake).
Our FY19E/FY20E earnings are marginally adjusted upwards by 2%/3% mainly from including the property contribution from Twentyfive.7 Gamuda Cove and Anchorvale in Singapore. Our forecasts have also imputed for the absence of Splash earnings. For now, we forecast flattish core earnings in FY19. But, the scaling down of the KVMRT 2 cost and potential change in project delivery partner structure pose downside earnings risk. — Maybank IB Research, Oct 1