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Gamuda
2QFY11 : On the right track
· In line with expectation
Gamuda’s 2QFY11 net profit came in at RM94.0m resulting in 6MFY11 of RM182.6m, making up 47.6% of both consensus and in-house earnings estimates respectively. We deem the results to be within expectations as we anticipate a stronger performance in 2HFY11.
· Net profit soared +42.2% y-o-y
6MFY11 revenue increased marginally by 1.2% y-o-y, but net profit rose substantially by 19.6% y-o-y, underpinned by improved margins in the construction and property segments. In the construction segment alone, the pretax margin almost doubled to 6.2% in 6MFY11 from 3.5% in 6MFY10. The Electrified Double Tracking Project and Yenso Park infrastructure works are progressing rapidly, having reached 58% and 72% completion. Outstanding construction order book stands at RM5.0bn.
Excluding profits from associates, the property division contributed the most to Gamuda’s pretax profit in 6MFY11 as its pretax margin edged up to 17.3% from 15.7% in the corresponding period of the last financial year. The property segment reported encouraging sales of RM600m in 6MFY11 with unbilled sales at RM840m. Bandar Botanic, Horizon Hills and Jade Hills continued to perform well.
· First MRT line tunnelling contracts up for tender in Q4
We understand from management that the contract details are being finalised for the “project development partner” (PDP) role that was awarded to the Gamuda-MMC JV at end-2010. Works on the first MRT radial line running from Sungai Buloh to Kajang is scheduled to start in July 2011 while the cost and network scheme of the entire MRT project is due to be announced in May 2011. As PDP, Gamuda-MMC will be pitted against other contractors in the so-called Swiss Challenge to bid for the Sungai Buloh-Kajang MRT line tunnelling job when it is opened for tender sometime in Q4 of 2011. The contract is targeted to be awarded in Q1 of 2012.
· Maintain HOLD, TP: RM3.99
Our earnings estimates are left unchanged with target price at RM3.99, pegging FY11 EPS to 19.5x PE (10yr historical average). Re-rating catalysts:
1) continued margin expansion from construction and property divisions over the next few quarters,
2) timely replenishment of construction orderbook 3) higher actual cost of MRT tunnelling contracts than expected. Our HOLD call is maintained.
In line with expectation
6MFY11 net profit came in strongly at RM182.6m, making up 47.6% of both consensus and in-house earnings estimates respectively. This net profit includes a boost of about RM16m due to the adoption of IC Interpretation 12, which affects the accounting treatment for service concession agreements. Instead of the conventional recognition of revenue and profits, the amount recoverable over the tenure of the concession is now recognised as a financial asset or intangible asset and amortized over the remaining concession years.
We note that net profit excluding this amount constitutes 43.4% of house estimates. We deem the results to be within our expectation as we anticipate a stronger performance in 2HFY11.
No dividend was declared for the 2QFY11.
For the first half of FY11, revenue increased marginally y-o-y, but net profits surged significantly by 19.6%. This dramatic increase in earnings was underpinned by improving
margins in the construction and property segments. In the construction segment, the pretax margin almost doubled to 6.2% in 6MFY11 from 3.5% in 6MFY10.
Good progress has been made so far with the ongoing Yenso Park infrastructure works, with approximately 28% of Yenso residential land parcels handovers completed to date since commencement in March 2011. Also, a second extension of time (EOT) has been granted for completion of the Electrified Double Tracking Project (EDTP) in 2014.
We opine that this would put the group in a position to mitigate LAD risks and claim compensation in the event of unforeseen delays to completion of the EDTP. Currently, Yenso Park and EDTP are 58% and 72% completed. Management is confident that pretax margins will inch up over the coming 2 quarters and the group’s full year net profit will exceed the all-time high of RM325m in FY08.
The property segment reported encouraging sales of RM600m in 6MFY11 with unbilled sales at RM840m, with Bandar Botanic, Horizon Hills and Jade Hills continuing to outperform the rest of its property portfolio.
Excluding profits from associates, the property division contributed the most to Gamuda’s pretax profit in 6MFY11 with margins rising from to 17.3% from 15.7% in 6MFY11.
Recently, Gamuda kicked off the pre-launch marketing of its flagship project Celadon City in Ho Chi Minh City. According to management, the response from potential homebuyers so far has been positive and this augurs well for Celadon City’s launch in April 2011. Gamuda City in Hanoi is set for launch in July 2011.
Management has set its Vietnam property sales targets at RM300m and RM1.5b for FY11 and FY12 respectively. On the local front, Madge Mansions is due to launch in April 2011.
Updates on MRT project
We understand from the management that the contract details are being finalised for the “project development partner” (PDP) role that was awarded to the Gamuda-MMC JV in
December 2010. Works on the elevated portion of the first MRT radial line running from Sungai Buloh to Kajang is scheduled to start in July 2011 while the cost and network
scheme of the entire MRT project is due to be announced in May 2011.
To recap from the previous company update, the JV has to meet to KPI attached to the role of PDP: -
1)completion and delivery of the MRT project on time
2)keep costs within the budget stipulated. As a PDP, the JV is given the authority to tender and award the MRT contracts on behalf of the Government. On top of that, the PDP will be held responsible for any project delays or cost overruns, excluding those due to volatility in building material prices as the Government will bear these costs.
As PDP, Gamuda-MMC will be pitted against other contractors in the so-called Swiss Challenge to bid for the Sungai Buloh-Kajang MRT line tunnelling job when it is opened for
tender sometime in Q4 of 2011. However, we opine since Gamuda-MMC is the only Malaysian company with the track record and expertise to undertake such a project, so it is highly likely that the JV will bag the tunnelling portion. The JV is sticking to its initial estimate of RM14b and management has made clear that it prefers the tunnelling contracts to be awarded in one lump sum as opposed to line-by-line.
