AmWatch - Gamuda : On to new conquests BUY, 24 Jun 2015

STOCK FOCUS OF THE DAY

Gamuda : On to new conquests                BUY

We maintain BUY on Gamuda with our fair value reduced slightly to RM5.75/share (from RM5.80/share previously). This pegs the stock at an unchanged 5% discount to its estimated NAV, as we trim its FY15F earnings by 6% (FY16F: -1%) and tone down its property contributions.

3QFY15 net profit fell 12% QoQ on lower billings from the civil works portion of the MRT Line 1 as it reaches the tail-end. Tunneling works have been fully completed. In terms of progress for MRT 1, the overall underground and elevated portions are about 68% and 55% completed, respectively. We remain upbeat on Gamuda’s order book prospects moving into FY16F. Specifically, we expect the MMC-Gamuda JV to be at the forefront to clinch the tunneling contract for the MRT Line 2 (MRT 2). From what we gather, the pre-qualification process for the civil contractors under MRT 2 is on a fast-tracked basis. There are no changes to the timeline – i.e. major awards are due by mid-2016 (tenders: 4Q15).

For now, our revised FY16F-17F net profit forecasts of RM790mil and RM810mil have not included any potential contributions from MRT 2, PTMP and the newly-acquired landbank in Melbourne and Kota Kinabalu, which imply some headroom for more earnings upgrades. While property pre-sales fell 44% YoY to RM280mil (9MFY15: RM810mil), the group remains on track to meet its full-year target of RM1.2bil, we opine. Management is now more sanguine on the property sector’s prospects – the market appears to have bottomed with more visible signs of a recovery next year. A 50% Gamuda led JV has also emerged as the highest bidder for a 3-acre piece of land in Toa Payoh, Singapore.

The group hopes to resume negotiations on SPLASH pending a resolution on the master agreement between the Federal and Selangor governments. Collectively, Gamuda’s water businesses (Gamuda Water + SPLASH) accounts for RM0.57/share or ~9% of its SOP.   Gamuda’s foreign shareholding level stood at ~27% as at the end of last month (early May: 29%).

Others :

Economic Update : Fitch indicates pressure on Malaysia’s sovereign credit  profile

QUICK TAKES

IOI Corporation : Invests 50% in LCK for US$25mil              BUY

Alam Maritim : Secured second installation job worth RM22mil HOLD

NEWS HIGHLIGHTS

Tenaga Nasional : Plans to raise up to RM10bil from sukuk issue

Services Sector : 7-Eleven to work with courier service provider

DISCLAIMER:

The information and opinions in this report were prepared by AmResearch Sdn Bhd. The investments discussed or recommended in this report may not be suitable for all investors. This report has been prepared for information purposes only and is not an offer to sell or a solicitation to buy any securities. The directors and employees of AmResearch Sdn Bhd may from time to time have a position in or with the securities mentioned herein. Members of the AmInvestment Group and their affiliates may provide services to any company and affiliates of such companies whose securities are mentioned herein. The information herein was obtained or derived from sources that we believe are reliable, but while all reasonable care has been taken to ensure that stated facts are accurate and opinions fair and reasonable, we do not represent that it is accurate or complete and it should not be relied upon as such. No liability can be accepted for any loss that may arise from the use of this report. All opinions and estimates included in this report constitute our judgement as of this date and are subject to change without notice.