Alliance DBS Research retains Buy on Gamuda, RM4.65 TP


  • Analyst Reports
  • Monday, 16 Dec 2019

“We continue to like the stock as the best proxy for a revival in government infrastructure spending. Other key catalysts to watch are i) revival of MRT 3, potentially in the 12th Malaysia Plan; and ii) the first infrastructure tenders in Australia in 1QCY20, ” it said on Monday.

KUALA LUMPUR: Alliance DBS Research is retaining its Buy rating and sum-of-parts (SOP)-derived target price (TP) of RM4.65 for Gamuda.

“We continue to like the stock as the best proxy for a revival in government infrastructure spending. Other key catalysts to watch are i) revival of MRT 3, potentially in the 12th Malaysia Plan; and ii) the first infrastructure tenders in Australia in 1QCY20, ” it said on Monday.

Gamuda posted a 1QFY20 headline net profit of RM174m (+1% y-o-y; -6% q-o-q). This was on the back of a 21% increase in 1QFY20 revenue to RM1.1bn. The results were in line with our and consensus estimates, it said.

Alliance DBS Research said Gamuda’s 1QFY20 construction pre-tax profit fell 14% y-o-y to RM86m as 1QFY19 earnings were still driven by the old structure for MRT Line 2 (PDP and tunnelling). As such, its 1QFY20 construction margins stood at 7.5% vs. 9.5% in 1QFY19.

As at end-October 2019, the above ground and tunnelling works for MRT 2 were 65% and 67% completed respectively. GAM’s outstanding orderbook stood at RM8.6bn as at end-October 2019.

Gamuda’s 1QFY20 property pre-sales of RM509m when annualised is below its RM4bn target. The presales were largely driven by sales in Vietnam that contributed more than half in 1QFY20.

Sales at Gamuda Cove have been more promising with the opening of the dedicated access road in September 2019.

The official launch of Anchorvale in Singapore is slated soon and it is expected to do well with a pre-sales target of RM300m in FY20F.

Gamuda’s 1QFY20 property pre-tax profit rose 37% y-o-y to RM64m while 1QFY20 margins improved to 12.1% (vs. 10.4% in 1QFY19) largely due to the maturity of its projects in Vietnam.

“Gamuda won its maiden project in Singapore after a long while tendering for projects there.

“This is for S$260m project (Gamuda has a 45% share) for a bus depot. This was not announced to Bursa Malaysia given it did not meet the requirements for disclosure. While margins are expected to be competitive, we deem this a historic win, being able to set foot in the market after many years.

“Expect positive milestones for Penang Transport Master Plan (PTMP). The Project Delivery Partner (PDP) agreement between SRS Consortium and the State Government is expected to be signed in January 2020.

“For the LRT contract, the Federal Government has agreed in principle to guarantee the State bonds to fund the LRT. This may pave the way for maiden awards of the LRT in 2HCY20.

“For the land reclamation works, the State is assessing different options to fund the land reclamation works. The current estimated timeline is for tenders in 1HCY20 with some work starting in late CY20.

“The priority would be Island A where the estimated land reclamation works are reportedly worth RM8bn – of which, the Smart Park will occupy 800 acres (RM3.5-4bn cost of reclamation).

“The RM2.36bn offer from the Ministry of Finance (MoF) to take over Gamuda’s four toll highways is now in its second extension period. The targeted timeline for signing of the definitive agreement is January 2020.

“Subsequently, an EGM is targeted to be held in March while the deal should be completed by April/May 2020. Nonetheless, the toll buyout may hit a snag and could be dependent on the government’s sale of PLUS.

“Gamuda remains committed to pay special dividends by end of the calendar year if the timeline is met, ” it said.

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