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Friday, March 25, 2016

Gamuda - KVMRT 2 awards coming soon

Results in line

2QFY7/16 net profit of MYR160m (-12% YoY, -0.7% QoQ) brought 1HFY7/16 net profit to MYR321m (-13% YoY), accounting for 48%/51% of our/consensus full-year forecasts. KVMRT 2 major works are expected to be awarded soon and the underground works value could exceed earlier forecast. Further upside could come from other infrastructure projects win. Reiterate as TOP BUY at unchanged RNAV-TP of MYR5.65.

KVMRT 1 works at tail end

In 2QFY7/16, construction pretax profit (before FRS 11) was 8% QoQ lower (-37% YoY) as construction works recognition declined 32% QoQ (- 28% YoY) but partly offset by higher 2QFY7/16 construction pretax profit margin of 8.2% (+1.1ppt QoQ, -1.2ppt YoY). These higher margins were due to the higher portion of higher-margin underground works recognised.

Offset by stronger concession earnings

Property development pretax profit (before FRS 11) also fell 12% QoQ (- 9% YoY) due to slower property progress billings (-6% QoQ, -10% YoY) and property pretax profit margins were also 1.5ppt QoQ lower (+0.2ppt YoY) to 22.6%. The weaker construction and property earnings were partly offset by stronger water and tolled expressways pretax profit (before FRS 11) (+7% QoQ, +9% YoY) due to improved contribution from its India expressways after the additional maintenance cost incurred in 1QFY7/16.

Earnings unchanged, maintain BUY

The value of KVMRT 2 underground works could exceed expectation and it could be awarded within one month. MMC-Gamuda is in a strong position to win the works. Additional job wins from KVLRT 3, Pan Borneo Sarawak Highway and Gemas-JB double track rail would provide further upside. However, this could be partly offset by lower property sales in FY16. Gamuda is our TOP BUY pick at unchanged RNAV-based MYR5.65 TP.

Source: Maybank Research, 25 March 2016

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