Gamuda core net profit for FY17 above forecast, says CIMB Research

  • Analyst Reports
  • Friday, 29 Sep 2017

RHB Research says it likes Gamuda for its exposure to the Mass Rapid Transit and Penang transport infrastructure.

KUALA LUMPUR: CIMB Equities Research says Gamuda’s core net profit for the financial year ended July 31, 2017 (FY7/17) was 3% above its forecast and 7% above consensus, due largely to stronger-than-expected construction billings and property sales.
It said on Friday that core net profit (excluding RM99mil impairment by Smart Highway) grew by 12% on-year to a new high of RM700mil. 

All divisions recorded growth in core earnings, led by construction’s stellar 40% on-year surge in pretax profit due to stronger MRT 2 billings and margins, and property development’s 22% growth as full-year sales of RM2.4bil exceeded its target by 14%.  

“Construction pretax margin grew slightly to 8% in FY17 (FY16: 7%) but we foresee more upside once MRT 2 underground works accelerate from FY7/18 onwards,” it said. 

As at end FY7/17, progress of the MRT 2 underground scope stood at 10%. The 12 tunnel boring machines (TBMs) will begin works in February 2018, including the construction of some underground stations. 

CIMB Research noted a sequential improvement in quarterly construction pretax margins from 8.3% in 3QFY17 to 9.9% in 4QFY17.  
“Gamuda has revised up its FY7/18 property presales target by nearly 50% to RM3.5bil, after exceeding RM1bil in sales for its Vietnam projects (i.e. Gamuda City and Celadon City). 

“The group has guided that RM1.6bn of the projected new sales would come from its international property developments. This, however, would cap upside to margins because properties in Vietnam are of lower value, apart from high start-up costs for new townships,” it said.  

CIMB Research said a slight negative surprise during the results briefing was on the LRT 3 project. 

“We understand that the tender/award of the 2km underground portion has been suspended to make way for a potential revision in project scope, which may exclude underground construction altogether.
“We view this as a minor setback as it accounts for 10% of the group’s total RM10bil job win target by end-CY17. 

“Chances of securing a package from the RM55bn East Coast Rail Line (ECRL) remain intact, in our view,” said the research house.  

CIMB Research also said Gamuda’s 40%-owned associate Syarikat Pengeluar Air Selangor (SPLASH) could see some positive news ahead of the takeover negotiation’s deadline of Oct 5. 

While no new details were revealed, a new takeover proposal has emerged and the takeover structure could be more favourable.   

“We retain our FY18-19 EPS forecasts and introduce FY20 numbers. We forecast FY18 to be another record year, driven mainly by construction. 

“Our target price remains pegged to a 10% RNAV discount. Gamuda remains our top big-cap rail play for both government driven urban rail jobs and China-led rail contracts. 

“Retain Add with a potentially strong rail job win catalyst in 4QCY17, with potential upside to its 33% foreign shareholding as a bonus. Key downside risks are job delays and lower contract win success rate,” said CIMB Research.
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