(March 28, RM2.84)
Maintain hold with a target price of RM2.70: Gamuda Bhd recorded profit after tax and minority interest (Patmi) of RM173.1 million in 2QFY19, which inched up 0.6% quarter-on-quarter (q-o-q) but down 22.6% year-on-year (y-o-y).
The flat q-o-q performance was a result of better performance in the property segment mitigated by a slide in construction and concession segments. Unfavourable y-o-y performance was mainly attributed to contraction in construction margin and absence of SPLASH’s earnings under concession segment. Broadly within expectations — 6MFY19’s Patmi met 54.7% and 56% of our and consensus full-year earnings forecast respectively. It is broadly in line with our expectations as we expect softer earnings in 2HFY19 given continuous margin contraction in the construction segment.
Profit before tax (PBT) decreased 2.3% q-o-q and 16.4% y-o-y at RM93.2 million in 2QFY19, backed by a revenue of RM1,122 million (+8.7% q-o-q and +5.7% y-o-y). The lower margin was due to cost rationalisation imposed by the government. Nevertheless, the margin is expected to deteriorate further in future. Overall, 6MFY19’s PBT tumbled 16.1% y-o-y to RM191.6 million.
The order book includes RM9.2 billion Klang Valley mass rapid transit line 2 (KVMRT2), RM500 million Pan Borneo Sarawak, and RM800 million of building work. Out of the building work secured are Rumah Selangorku (using industry building system method), building work for IOI Corp and infrastructure work for Pemodalan Nasional Bhd (PNB).
East Coast Rail Link (ECRL) regained traction following government’s effort to renegotiate with China and most likely to be rolled out in a month’s time. We learnt that Gamuda plans to tender if the project is rebooted. Nevertheless, the group is still tendering for other local jobs, on an open tender basis. Once getting the final approval, SRS consortium (Project deliver partner [PDP] of the project, in which Gamuda has a 60% interest) would begin detailed design. We understand that tender calling, evaluation and awards are likely to take another year. Therefore, initial contract awards probably by late 2020. Nevertheless, we also learnt that funding remains a challenge for the project as it takes at least four years to monetise a reclaimed land by the state. As such, the state is trying to get bridge-financing from the federal government. In the meantime, the PDP also assists in getting bridge-financing in order to kick start the project.
Pre-sales achieved was mainly driven by oversea projects, like the Celadon City and Gamuda City in Vietnam. Local and oversea sales mix were roughly 40% and 60% respectively. Moving forward, Gamuda expects Gamuda Cove, Gamuda Gardens and Twentyfive.7 to drive domestic sales in coming quarters. Meanwhile, overseas sales continue to be driven by the Vietnam project. — JF Apex Securities, March 28