Gamuda - More than meets the eye

-  We upgrade Gamuda to a BUY, with our fair value raised from RM3.79/share to RM4.40/share. Gamuda is trading at forward PEs of only 11x-12x – where the market appears to have priced-in election risk at these trough levels.

-  We believe the valuation disconnect is unjustified. Firstly, Gamuda’s fundamentals remain solid with a sizeable order book of RM4.8bil, >RM10bil new job prospects in 2013, and record profits over the next three years.  

-  Secondly, we view MD Datuk Lin Yun Ling’s strategic move to nearly double his holdings in Gamuda (within a month) as a signal of more things to come. Further, Lin’s reported interest to stay for a second term (existing contract expiring next June) should ensure management continuity.  

-  Gamuda is eyeing >RM10bil of new orders for 2013, notably the KVMRT 2 and 3. It expects the government to approve new MRT lines by 1Q13 (contract award: 4Q13). 

-  The MRT project aside, Gamuda’s strength in tunnelling/rail works should also put itself in good stead to bid for the Gemas-JB double tracking job – although the final decision largely hinges on the timing of the elections.  

-  Thirdly, Gamuda’s earnings profile is set to be transformed with the increasing weight of the Sg.Buloh-Kajang (SBK) MRT job. With its roll-out ahead of schedule (target: 98% by end-2012), we expect the project’s contributions to construction EBITDA to rise from 42% in FY13F to 53%-54% in FY14F-15F. This is timely as the Ipoh-Padang Besar project is due for completion by end-2014.

-  Gamuda remains open to potential divestment of its concession assets (RM1.08/share or 23% of its SOP), although it has yet to receive any concrete offer. We do not preclude the likelihood of the group returning part of proceeds from the sale of these assets to its shareholders – suggesting further upside to our current yields (~4%). 

-  Fourthly, while overall sales momentum has slowed over the last 3Q – particularly in Vietnam – Gamuda’s pre-sales surged 87% to RM1.5bil in FY12 vs. only RM820mil in FY10.  For FY13F, Gamuda is maintaining its new property sales forecast at RM1.7bil (ours: RM1.5bil). 

-  Gamuda Land’s outstanding GDV stands at RM22bil (unbilled sales: RM1.2bil) – signalling its rising profile as a leading developer in Malaysia. New launches in the pipeline include two new city centre projects – i.e. Madge Mansions and The Robertson (combined GDV: RM1.3bil).  

-  Fifthly, Gamuda’s foreign shareholding of 37% as at endAugust 2012 is lower than its peak of >50% back in 1H08.  

Source: AmeSecurities