Gamuda - Lacking near-term contract surprises HOLD

- Maintain HOLD on Gamuda with our fair value tweaked slightly upwards by 2% to RM3.79/share on an unchanged 5% discount to its revised Sum-Of-Parts (SOP) value, following better-than-expected 1HFY12 earnings.

- For the 1HFY12 reporting period, Gamuda reported a net profit of RM269mil on total turnover of RM1.4bil. Its results constituted circa 57% of our previous full-year forecast, and 54% of consensus estimates.  

- The positive variance came from: (i) higher-than-expected construction margins which doubled to 12.4% in 1HFY12; (ii) higher-than-expected contributions from the water & expressways division and (iii) lower-than-expected effective tax rates (21% vs our previous forecast of 25%).

- Construction earnings jumped 89% YoY, as physical progress at the Ipoh-Padang Besar electrified double tracking project has reached 77%. Construction margins doubled to 12.4% against 6.2% in 1HFY11. 

- Gamuda’s outstanding orderbook stands at ~RM5.8bil with the inclusion of the RM8.2bil tunnelling contract for the Sg.Buloh-Kajang (SBK) MRT line (Gamuda’s 50% share:RM4.1bil). If the Project Delivery Partner (PDP) role awarded to the MMC-Gamuda JV is to be included, its orderbook would expand close to a record RM12bil.

- Property pre-sales also doubled to RM870mil from a year ago. The encouraging response at Gamuda City (Hanoi: pre-sales: >RM120mil) was mitigated by a sluggish debut for Celadon City (Ho Chi Minh City) despite the latter booking in gains from the sale of land to AEON during the quarter. Unbilled sales stood at ~RM1.3bil.

- The MMC-Gamuda JV is awaiting a formal award from MRT Co for the SBK tunnelling job – real physical works should kick-off by March 2013. 85% of the 90 works packages under this new line should be awarded by October 2012.    

- We have raised FY12F-14F net profit forecast by 5%-6%. But, our HOLD call on Gamuda remains as the SBK MRT line project wins have largely been crystallized, with only the actual award of the tunnelling job pending. We do not expect a tangible decision on another two new MRT lines to materialise anytime soon.

- The RM8bil Gemas-JB double tracking project appears to be the only other near-term catalyst – where the GamudaChina Railway Construction Co is reportedly among three consortiums being considered for the job.

- The water consolidation process in Selangor is still frustratingly slow – with no resolution in sight for now. SPLASH’ receivables are growing ~RM50mil every quarter

Source: AmeSecurities