GAMUDA BHD

By Affin Hwang Capital Research Buy (maintained)

Target price: RM5.86

CONSTRUCTION outfit Gamuda Bhd’s headline net profit of RM602mil in the financial year of 2017 was below expectations, according to Affin Hwang Capital Research.

The below-expectation headline net profit was following Gamuda’s one-off asset impairment for its SMART toll road concession due to reduced traffic volume forecasts.

“Gamuda’s FY17 headline net profit, which fell by about 8% year-on-year (y-o-y), was 12% to 13% below consensus and our forecasts of RM684mil to RM691mil. We were surprised by the RM98.5mil impairment for its SMART toll road concession in the fourth quarter of FY17.

“The group remains our top large-cap construction entity, with a ‘buy’ recommendation albeit a reduced target price of RM5.86,” said the research house in a note.

Despite the fall in headline net profit, Gamuda’s FY17 top line jumped by 37% y-o-y to RM5.7bil, driven by higher revenue contribution from all segments. Revenue of the construction, property and concessions segments grew by 37% y-o-y, 67% y-o-y and 6% y-o-y respectively.

The construction company’s property sales grew significantly by 14% y-o-y, reaching a new record high of RM2.38bil in FY17. This was following the successful launch of its new Gamuda Gardens township project and higher sales for most of its ongoing projects in Malaysia.

“Overall property sales in Malaysia jumped 98% y-o-y to RM1.03bil, while over- seas sales declined by 12% y-o-y to RM1.35bil due to lower sales in Singapore. Gamuda has set higher target sales of RM3.5bil for FY18 and RM4bil for FY19 with more aggressive launches planned for Malaysia and overseas markets.

“On our part, we lift our earnings forecasts by 5% for FY18-19 to reflect higher property sales assumptions by RM2.8bil for FY18 and RM3.17bil for FY19,” said Affin Hwang Capital Research.

However, the research house added that Gamuda’s prospects for construction contracts are rather dimmed, moving forward.

This was mainly due to the possible review of the design of the LRT Line 3 underground package.

“Gamuda’s competitive advantage could be reduced if the design is changed from a deep tunnel design using tunnel boring machines to using a cut and fill method for a shallow tunnel or building elevated viaducts,” it said.