AmWatch - Gamuda : A splash of hope BUY, 27 Jun 2014

STOCK FOCUS OF THE DAY

Gamuda : A splash of hope          BUY

Maintain BUY on Gamuda with an unchanged fair value of RM5.25/share – a 10% discount to its SOP value. Gamuda delivered a 3QFY14 net profit of RM178mil, taking 9MFY14 earnings to RM513mil, which is within our and street estimates.  The group declared a second interim DPS (single-tier) of 6 sen, bringing total DPS declared to-date to 12 sen or a yield of ~2.5%.

9MFY14 earnings expanded by 37% YoY, buoyed by stronger construction and property contributions. Construction earnings increased by ~1.5x as work on the Klang Valley MRT 1 is running at peak levels. As a result, construction margins improved from 7.7% in 2QFY14 to 9.1% in 3QFY14.

To-date, overall progress for the underground works and elevated portions reached 45% and 30%, respectively, as at end-3QFY. Positively, some preliminary works on the second MRT line have commenced while waiting for official announcement from the cabinet. The initial batch of awards could be out by 1HFY16 (tenders: 2HFY15).

Given its track record, we continue to rate the MMC-Gamuda JV as frontrunners for both the Project Delivery Partner (PDP) and tunnelling contracts for this new line.

Although there was a slowdown in 3QFY14, management guided that the group remains on track to achieve its FY14F pre-sales target of RM1.9bil (+9% YoY). 9MFY14 pre-sales achieved was RM1.5bil (unbilled sales of RM1.8bil).

Gamuda has fortified its control over KESAS at 70% following an improved offer to buy out PNB’s 20% stake in the highway for RM290mil made earlier this month.  The move is accretive; we estimate a ~2% lift to Gamuda’s sum-of-parts value (from RM5.25/share to RM5.36/share) and a 3% increase in FY16F-17F FD EPS. We leave our earnings forecast unchanged for now. Gamuda remains hopeful of a breakthrough for SPLASH, as the threat of Section 114 of WASIA subsides. We do not discount special dividends if the sale of SPLASH goes through.

QUICK TAKE

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