Analysts are concerned about Gamuda's depleting order book

KUALA LUMPUR (Dec 20): Gamuda Bhd is facing the problem of depleting order book as its existing construction projects are reaching the tail-end and on expectations of possible hiccups on the execution of the Mass Rapid Transit (MRT) project.

Analysts are concerned that the depleting construction order book would translate into weaker future earnings.

According to OSK Research, while Gamuda's FY12 ending July 31 earnings are anticipated to grow 22.6%, this will eventually diminish to a growth of 6.5% for FY13 as its existing construction order book "would have dried up by then" and that the MRT tunnelling works would only be at the infancy stage.

However, Jeremy Goh, an analyst at OSK, foresees that by FY14, the company's earnings growth momentum will pick up again at 15.6% in anticipation of registered income from the MRT job. For a start, the government has solicited bids for the Sungai Buloh-Kajang MRT line. The tunnelling work for the Sungai Buloh-Kajang MRT line is worth some RM7 billion.

For now, Gamuda has some RM2 billion worth of outstanding building jobs, of which a large chunk comes from the Ipoh-Padang Besar double-tracking project which is already 71%-completed.

Its other projects include the New Doha International Airport in Qatar and Yen So Sewage Treatment Plant in Vietnam, which are 98% and 95% completed respectively.

Nonetheless, the silver lining at this juncture, analysts said, is that MMC-Gamuda Joint Venture Sdn Bhd, in which Gamuda holds a 50% stake, stands a relatively good chance of securing the tunnelling works for the Klang Valley MRT project.

"The MRT project is on track to be awarded by 1H12 and we continue to view the company (Gamuda) as the frontrunner for the tunnelling works," OSK's Goh wrote in a note on Monday.

Gamuda's net profit rose 49% to RM132.32 million in the first quarter ended Oct 31 from RM88.53 million a year earlier as operating and finance costs declined, while top line improved. Revenue for the quarter came in 1% higher at RM641.99 million from RM634.2 million.

As at Oct 31, Gamuda had cash of RM1.39 billion against debt obligations of RM2 billion, translating into a net debt of RM612.52 million, according to its latest balance sheet. Net assets per share stood at RM1.85. Gamuda shares rose 12 sen to RM3.12 on Monday.

Group managing director Datuk Lin Yun Ling could not be reached for comment at the time of writing.

According to the Greater KL Public Transport Master Plan draft, the remaining two MRT lines comprise he 41km Circle line and the 36km North-South line.

These lines are scheduled for operation from mid-2013.

"Should the JV win the Sungai Buloh-Kajang MRT line, we believe this will enhance its chances for the remaining two lines as it would have already purchased the required equipment (tunnel boring machines). This would enable the JV to price its bids lower than its competitors since it already owns the necessary equipment," said Goh, who recommends a "buy" for Gamuda shares with a fair value of RM3.94.

However, analysts also foresee that it will not be a walk in the park when the MRT projects take off.

In a note on Monday, RHB Research Institute Sdn Bhd said even if work on the MRT projects start as scheduled, "the initial progress is likely to be painfully slow due to bureaucratic hurdles". Hence, the earnings impact from the MRT projects may take up to two years to be made, according to RHB.

The MMC-Gamuda consortium was the only Malaysian entity shortlisted for the RM7 billion MRT tunnelling project. Its global rivals include South Korea's SK Holdings, and China's Sinohydro Group Ltd, apart from two other bidders — one each from China and Japan. It was reported last October that these companies had three months to submit their tenders for the project.

By virtue of MMC-Gamuda being the project delivery partner of the MRT project, the consortium is deemed to have an edge over its competitors. This is because MMC-Gamuda is given the right to match the lowest rival offer for the tunnelling job under the Swiss challenge system.

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