Gamuda’s 9MFY12 net profit of RM406.8m (+36.0% y-o-y) was above both our and consensus forecasts, at 81.6% and 81.3% of the full-year estimates respectively. This was due to the recognition of higher-than-expected margins in its construction and property divisions. While its property sales are likely to slow down amidst a cautious outlook, we continue to see strength in its construction earnings as works on the KV MRT go into full swing. Maintain BUY, with our FV revised marginally down to RM4.46.
Above expectations. Gamuda’s 3QFY11 revenue stood at RM705.9m (+13.6% y-o-y, -8.2% q-o-q) while net profit came in at RM138.0m (+18.3% y-o-y, +1.1% q-o-q). Cumulatively, 9MFY12 revenue totaled RM2.11bn, up 13.7% y-o-y driven by its property division, which saw revenue surge 66.0% y-o-y to RM799.1m. By the same token, PBT climbed 40.2% y-o-y to RM551.5m, lifted by higher-than-expected margins from ongoing works on the Electrified Double Tracking (EDT) project as well as from its property division. Overall, the 9MFY12 net profit of RM406.8m (+36.0% y-o-y) beat our and consensus’ expectations. A second interim DPS of 6.0 sen was declared, bringing the YTD payout to 12.0 sen, implying a payout ratio of 60%.
Update on underground portion of SBK line. Management expects its tunnel boring machines (TBMs) to commence boring in 2QCY13, having placed orders for 10 TBMs worth some RM1.2bn. Meanwhile, works are ongoing at its launching shafts at Semantan and Jalan Cochrane, and demolition works are being carried out at Pasar Seni. Initial works have also commenced on 5 out of the 7 underground stations. All in, management reassured us that work progress is largely on track, with activities to gradually pick up at all sites.
Controversy over site acquisitions. According to press reports on the proposed demolition of Bukit Bintang Plaza to make way for the Bukit Bintang underground station, mall owner UDA Holdings has given its tenants notice to vacate the premises by the end of the year. Nonetheless, Gamuda’s management hopes that the site could be vacated to allow it to take possession by 3QCY12, or risk potential delays in completing the SBK line. Meanwhile, negotiations with landowners are ongoing in respect of the Jalan Sultan site, with all except 3 landlords having given their consent for the MRT plan to proceed.
More contracts from KV MRT. The remaining v8 package and four out of the eight station packages will be progressively dished out in Aug this year. To date, 31 works packages worth RM13.8bn have been awarded, with the remaining 54 work packages worth RM6.2bn to be contracted by 4QCY12. Overall, we are encouraged by the positive progress made, with the SBK line remaining on track to be completed by mid-2017.
Quantum of EOT still not known. Previous media reports speculated that MMC-Gamuda will seek a variation order of as much as RM1.5bn from the Government due to cost overruns in the RM12.5bn Ipoh-Padang Besar EDT project. Recall that the project was previously granted an Extension of Time (EOT) by the government from 2013 to 2014 due to the late handover of land by the authorities. Management admitted that a claim for EOT will likely be filed. The exact quantum has yet to be specified but the amount is likely to be significantly lower than the RM1.5bn reported. Progress on the EDT is now largely on track, with 81% of the works completed. The Padang Besar-Ipoh section will be completed by mid-2014 and the Bukit Mertajam-Butterworth section by end-2014.
Potential jobs ahead. Management conceded that official award of the southern portion of the EDT running from Gemas to Johor Bahru worth a total of RM8bn is likely to take place after the general election, which is now rumored to be held in Sept this year. Its share of works and equity stake in the partnership with China Railway Construction Co has not been determined but management is confident of bagging at least half of the jobs available. Meanwhile, the remaining two lines of the KV MRT are currently undergoing evaluation by independent consultants and we understand that the exact alignment will be determined by 1QCY13 and potentially awarded in 2HCY13.We continue to like Gamuda’s chances of bagging the underground portion of the remaining two KV MRT lines, which we estimate to be worth at least RM15bn given the Government’s preference for local contractors and the fact that Gamuda has already procured the necessary equipment for the SBK line and which are ready for redeployment.
Nothing concrete on Litrak yet. Talks with PLUS on the potential disposal of Gamuda’s toll concessionaires in the country are ongoing but nothing concrete has emerged so far. Should this materialize, management does not discount the possibility that it might plough back some cash to its existing shareholders.
Property segment may slow down. The company’s 9MFY12 property sales totaled RM1.2bn (of which RM920m was recorded in Malaysia and RM270m from Vietnam) vis-à-vis its full-year target of RM2.0bn, with unbilled sales now totaling RM1.3bn. In light of the weaker sentiment amid a cautious property market outlook, management said that sales, especially in the higher end segment, are slowing. We are forecasting property sales of RM1.5bn for FY12, RM1.8bn for FY13 and RM2.0bn for FY14. Elsewhere, the group is beefing up its landbank with the latest acquisition of a 5-acre site in Kelana Jaya for RM95m cash. It has been earmarked as the site for a mixed SOHO and retail development with an estimated GDV of RM600m.
BUY. We are encouraged by the decent results and believe that earnings would come in even stronger once the KV MRT project shifts into high gear. While we make no major changes to our core assumptions for now as we understand from management that the margins recognized from EDT are likely to normalize in 4QFY12 as the project approaches its tail-end, our FY12-FY14 net profit estimates are revised upwards by a marginal 0.2%-1.6% for housekeeping purposes. Maintain BUY, with our SOP-based FV now revised to RM4.46 (from RM4.58 previously), due to slight tweaks to our earnings forecasts as well as an enlarged share base following the exercise of some ESOS shares.
Source: Kenanga
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