Gamuda Bhd (June 20, RM3.74)
Maintain buy at RM3.72 with target price RM4.40: We expect Gamuda's 3QFY11 ended April 31 net profit to remain flat at RM90 million to RM95 million against 2QFY11's RM94 million. We expect construction earnings before interest and tax (Ebit) margin to stay at 8.7%, the same as in 2QFY11, and continue to improve from 1QFY11's 6.6%.
If 3QFY11 net profit meets our expectation, this would bring 9MFY11 net profit to RM270 million, which would be 73% of our full-year forecast and 70% of consensus. Looking ahead, we expect contribution from the construction division to improve in 4QFY11, aided by an acceleration of construction activities and margin improvement.
Gamuda and MMC Corp recently agreed to form MMC Gamuda KVMRT (T) Joint Venture a 50:50 JV for the purpose of pre-qualifying and tendering for the tunnelling, and other underground works packages for the mas rapid transit project.
We understand the management may increase its FY11 domestic pre-sales target by 30% to RM1.3 billion. Year-to-date, Gamuda has unbilled sales of about RM950 million (1.8 times FY10's property revenue).
We gather that the management may hold back two property launches in Vietnam — Celadon City (Ho Chi Minh City) and Gamuda City (Hanoi) — due to uncertainties surrounding the Vietnamese dong.
We maintain our earnings forecasts for FY11/12, but note the potential upside from the bagging of the RM13 billion to RM14 billion MRT tunnelling works and sales from Vietnam projects.
We maintain "buy" with a target price of RM4.40. Our target price factors in contributions from the following: (i) RM13 billion MRT project (36 sen per share increment to our realisable net asset value) given the project's increased visibility; (ii) RM10 billion Yenso Park (27 sen per share increment to our RNAV); and (iii) rollover of our valuation for the construction and property segments to FY12. Our sum-of-parts target price implies FY12F fully-diluted price earnings ratio of 21 times (below its +1 standard deviation PER of 23 times).
The share price could rise with upcoming news flow on the MRT groundbreaking which is expected to take place on July 8. We anticipate another momentum play approaching 4Q11 before the award announcement of the MRT tunnelling works. — UOB KayHian, June 20
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