Thursday, 14 March 2013
Gamuda - 1HFY13 Results To Meet Expectations
We maintain our Buy call and fair value of RM4.49 ahead of the release of 1HFY13 results, that we expect will meet expectations. We like Gamuda given that it is the best proxy to public infrastructure spending in Malaysia, and we believe its largest construction job, i.e. the SBK MRT Line project, has gone beyond “the point of no return”, given the massive physical works that have been carried out thus far.
A solid 1HFY13 expected. We expect Gamuda’s 1HFY13 net profit to come in at RM285-295m (+6-10% yoy) that will make up 48-50% of our full-year net profit forecast of RM577m and the full-year consensus net profit of RM605m. The strong earnings will have been backed largely by continued profit recognition from the Sg Buloh – Kajang (SBK) MRT Line project (coming from both the elevated and
tunnelling portions) as well as sustained property development profits.
To sustain double-digit construction margins. We expect Gamuda’s construction margins in 2QFY13 to come in at 10-15% at the EBIT line, backed largely by the high-margin SBK MRT Line project. This will likely buck the downward trend in margins of most general contractors in the market of late.
Risks to our view. These include: (1) Risk associated with the SBK MRT Line project including delays, cost overrun and potential changes in the PDP terms; (2) Delays in the rollout of Lines 2 & 3 of the Klang Valley MRT project; and (3) Prolonged slowdown in the property market in Vietnam.
Investment case. We like Gamuda as: (1) It is the best proxy to public infrastructure spending in Malaysia, given its dominant role in the SBK MRT Line project, and most likely, in Lines 2 & 3 of the Klang Valley MRT project as well; and (2) We believe the SBK MRT Line project has gone beyond “the point of no return”, given the massive physical works that have already been carried out on the ground. Fair value is RM4.49. Maintain BUY.