AmWatch - Gamuda : Robust prospects beyond KVMRT BUY, 30 Sep 2014

STOCK FOCUS OF THE DAY

Gamuda : Robust prospects beyond KVMRT       BUY

We maintain BUY on Gamuda with a higher fair value of RM5.40/share (previously: RM5.25/share) as we roll-forward our valuation base to FY15F. Our fair value upgrade also takes into account the acquisition of a further 20% stake in KESAS from PNB (completed in June).

Core FY14 net profit rose 9% YoY on higher construction and property earnings. Excluding the impact from FRS11, core construction earnings rose 6% YoY although margins were a tad lower at 8.7% in FY14 (FY13: 9.9%). The MMC-Gamuda JV continues to deliver for the KVMRT line 1; work progress has reached 52% and 35% for the tunneling and PDP components, respectively. The entire tunneling works should be completed by the second quarter of next year, while system handover for the elevated portion should commence in a months’ time.

We understand that the roll-out for KVMRT2 has been set back by a couple of months following an additional review of the line by a government-appointed consultant. But, management maintained its view that the new line could be formalised by year-end with major awards to come out by mid-2016 onwards (tenders: late-2015). On the other hand, core property earnings surged 19% YoY largely on the strong pre-sales trajectory over the last two FYs and stable margins (unbilled sales: RM1.7bil). New property sales slipped 55% YoY to RM300mil in 4Q. Reflecting its cautious outlook for FY15, management has revised downwards its FY15F sales target by 8% to RM1.8bil.

Remain invested in Gamuda. More landbanking moves are possible within a year; ~RM1.3bil has been set aside in search of more land, including those in Penang. Gamuda’s track record as the PDP for KVMRT1 also puts it in good stead to bid for a similar role under the Penang government’s transport master plan. The PDP contract could be awarded by mid-2015.

Others :

Public Bank : Scaling back our earnings expectations        HOLD

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