Gamuda Bhd
(March 27, RM5.15)
Maintain buy call with an unchanged fair value of RM5.80 per share: Gamuda’s results for the first half ended January of financial year 2015 (1HFY15) met our expectations — constituting 50% of our full-year net profit forecast (consensus: 48%). 

While 2H numbers could come in below 1H’s as the pace of civil works for the Klang Valley mass rapid transit (MRT) Line 1’s advanced packages taper off, we retain our forecast FY15F ending July net profit of RM738 million. 

Earnings for 1H rose 10% year-on-year (y-o-y) (RM368 million), mainly on better work progress for underground works of MRT Line 1 and positive impact from a higher stake in the Shah Alam Expressway. 

Overall progress for the elevated and tunnelling portions of MRT 1 have reached 61% and 50%, respectively. 

For the upcoming MRT Line 2, the MMC Corp Bhd-Gamuda joint venture’s (JV) project delivery partner (PDP) agreement should be concluded by the second quarter of 2015 (2QCY15). 

The JV should also be in the running for the tunnelling job, with major work packages out from mid-2016 (tenders: 4QCY15).

New property sales rose 20% quarter-on-quarter to RM292 million but were down by a steep 45% y-o-y for 1H (RM535 million), with notable weakness seen for the Horizon Hills project in Johor. Unbilled property sales stood at RM1.5 billion. 

Management expects weaknesses in the local property market to persist in 2015/16, particularly for the Johor region. As such, the group has revised downwards its FY15F new property sales target by about 34% to RM1.2 billion.

On the flipside, its Vietnamese projects show nascent signs of recovery with pick-up seen for Gamuda City (Hanoi) following the completion of landed residential products and the setting up of a reputable international school. 

Likewise, Gamuda has been proactively re-profiling its land bank during the current downcycle via a series of shrewd acquisitions in Kuang (331ha), Kundang (36ha), Kota Kemuning (104ha), and a 619ha tract fronting the North-South Expressway Central Link that can be developed into future townships. 

The group has another RM1 billion left from its two-year landbanking programme, with the Klang Valley and Kota Kinabalu as potential markets. 

It had also recently acquired a parcel of freehold land (1,435 sq m) on Chapel Street, Melbourne for A$40 million (RM114 million). The land is to be developed into 150 apartment units with an estimated gross development value of RM390 million (targeted launch: late 2015). 

Apart from the MRT Line 2 project, we envisage several share price catalysts coming up for Gamuda: (i) the PDP for the Penang Transport Master Plan; (ii) renewed hopes of a resolution for Syarikat Pengeluar Air Sungai Selangor; and (iii) potential inclusion into the FBM KLCI 30 Index (Gamuda is one of five stocks on the reserve list; next review is in June). — AmResearch, March 27

This article first appeared in The Edge Financial Daily, on March 30, 2015.