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Gamuda Bhd
(Dec 17, RM4.81)
Maintain “neutral” with a target price (TP) of RM5.35:
In the first quarter of financial year 2015 (1QFY15), Gamuda posted a net profit of RM185.8 million (+4.4% quarter-on-quarter [q-o-q], +12.3 year-on-year [y-o-y]), which was within our and consensus estimates. The 1QFY15 net profit constituted approximately 25% and 24% of our and consensus full-year estimates.

The group continued the earnings momentum with profit before tax and net margins grew by 17% and 12% respectively, driven mainly by the mass rapid transit (MRT) billings and other divisions such as properties and toll road concession. Separately, we understand that the new Selangor menteri besar could revise the offer for Syarikat Pengeluar Air Selangor Holdings Bhd and the group is expecting resolution in the coming months.

The construction division, which is solely driven by the Klang Valley MRT (KVMRT) Line 1 (Sungai Buloh-Kajang Line) saw the group’s current outstanding order book lowered by approximately RM200 million to RM1.8 billion in 1QFY15.

The billing was slightly slower with civil works nearing completion and the project moving into more advanced packages. The key milestone to watch is the completion of tunnelling works in about three months. The track and systems access works have commenced.

As for KVMRT2, the project delivery partner (PDP) agreement is expected to be signed by the first half of 2015 and the major contract awards for MRT2 (RM25 billion) will commence only by mid-2016. The other project Gamuda is eyeing is the Penang Transport Master Plan. It is bidding for the PDP role and the outcome is expected by end-2015. The project is said to cost RM27 billion.

Gamuda’s property sales reached RM240 million in 1QFY15, which is considerably lower y-o-y as the Iskandar project in Johor continued to disappoint.Unbilled sales stood at RM1.5 billion but the group is likely to revise downwards the sales target of RM1.84 billion for FY15 in the coming quarter. We expect sales for Horizon Hills in Iskandar may need to be cut by almost half from RM700 million, given the difficult trading environment in Iskandar currently.

As for land banking, we understand that Gamuda is still scouting for more land deals in FY15. With recent land deals totalling RM2.2 billion, the group has now about 4,000 acres (1,619ha) of land with an estimated gross development value of RM48.5 billion remaining.

We maintain “neutral” but TP revised to RM5.35, after rolling over our valuations which are pegged on parity with our sum-of-parts valuation.

We believe Gamuda, being the prime beneficiary of the infrastructure spending, should see its earnings underpinned by the current MRT1 and then MRT2. Job flows for Gamuda remain good but we opine the risk-reward is not attractive as yet. That said, if Gamuda succeeds in clinching the Penang Transport Master Plan, we believe the stock will be further rerated. — Public Investment Bank, Dec 17

Gamuda-18Dec2014_theedgemarkets

 

This article first appeared in The Edge Financial Daily, on December 18, 2014.

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