Gamuda - Waiting for MRT2 signal Buy

Maintain BUY on Gamuda with an unchanged fair value of RM5.40/share – a 10% discount to its SOP value. Gamuda reported 1QFY14 net profit of RM165mil (+ 14% YoY). Results were in line. The group declared a first interim DPS of 6 sen, similar to last year.
- Construction earnings rose by 7% YoY on better progress from the ongoing Sg.Buloh-Kajang MRT project. Overall progress for the elevated portion and tunnelling works has reached 33% and 47% respectively ahead of its scheduled completion in July 2017.
- Construction margins was largely the same QoQ at 6.6%, but should trend upwards in the subsequent quarters as work progress on the MRT works move towards the higher-margin portions (civil works to be substantially completed by 4Q14).
- Property earnings rose by 5% YoY (+11% QoQ), spurred in part by stronger billings from its Horizon Hills project in Iskandar Malaysia. Sales from Horizon Hills rose by 58% YoY – anchoring a 72% YoY jump in total new property sales to RM575mil.
- Despite the recent cooling measures imposed on the property market, Phase 1 of The Robertson condominiums saw an impressive 80% take-up rate since its launch in mid-October (average pricing: RM1,200psf).
- Gamuda is still awaiting fresh replies from the Selangor government. On 4 December, Gamuda said it was unable to consider the state government’s latest offer to acquire water assets in Selangor, including SPLASH in which Gamuda has a 40% stake.
- We understand there are still some unresolved issues surrounding the offer. This includes the treatment of SPLASH’ receivables (~RM1.7bil) and the status of its 80%-owned Gamuda Water, which provides O&M services for SPLASH.
- Furthermore, Gamuda’s offer to buy-out the remaining 70% stake in does not own in KESAS (from PKNS, AmCorp Properties and PNB) for RM875mil is due later today. We believe Gamuda's push to acquire KESAS is to fill the earnings void left by a successful sale of SPLASH; the former could account for 65%-70% of the latter’s profits on initial estimates.
- However, the stock’s immediate re-rating catalyst lies with the second Klang Valley MRT line. The MMC-Gamuda JV remains as a firm favourite for both the PDP role and tunnelling portion. A firm decision could be known after the weekly cabinet meeting.
Source: AmeSecurities

Labels: GAMUDA