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Gamuda - 2QFY10 : Broadly inline

Within expectations
6MFY10 results achieved 45% and 43% of house and consensus full-year estimates respectively. We deem the results to be broadly in line as we expect 2HFY10 to report stronger earnings. As expected, no dividends were declared.

Construction margin improves but lack new jobs
Despite 6MFY10 revenue increasing by only 1.8%, net profit was 25.9% higher due to continued improvement in construction margin.

Construction pre-tax margin (excluding share of associates’ profits) has increased from 2.7% in 1QFY10 to 4.3% in 2QFY10. Current order book now stands at RM7.0bn. Of concern, however, is the lack of new jobs.

Management attributed this to slow rollout of remaining 9MP projects.

Having lost out the Hulu Terengganu dam job, the company is now waiting for the LRT extensions tenders. Jobs flow from the Middle East is also slow due to the recent credit crunch which has finally taken a toll on infrastructure spending. Additional job for Dukhan Highway has now been
postponed.

Strong property sales
Property sales have remained strong with RM490m sales in 6MFY10.

Unbilled sales now stand at RM600m as compared to RM700m in 1QFY10. The launch plans for Yenso Park remains unchanged, with the residential launches targeted for mid CY10. Meanwhile, the company recently acquired land in Tan Thang will be launched in Oct/Nov 2010.

Maintain BUY
We reiterate our BUY call and maintain our P/E-based target price at RM3.18, based on historical average 20x multiples to CY10 earnings.

Post-issuance of warrants on 1-for-8 rights basis, TP will be reduced to RM3.12. Our SOP value is RM3.43 on cum-rights basis and RM3.32 on ex-rights basis.
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