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3QFY10 : Broadly inline• Broadly inline
Net profit came in at RM73.0m for 3QFY10 and RM204.1m for 9MFY10. Although results achieved 69.5% and 67.7% of house and consensus full-year estimates, we deem it to be broadly in line as we expect a stronger 4QFY10. A second net interim dividend of 4.5 sen per share has been declared, bringing YTD net dividends to 9 sen per share, or 3.2% dividend yield. We do not expect a final dividend in 4QFY10.
• Continued margin expansion
Y-o-y, 9MFY10 revenue of RM1.74bn is pretty flattish compared to RM1.79bn in 9MFY09. However, 9MFY10 net profit of RM204.1m is a 36.7% improvement over 9MFY09’s RM150.4m. The improved performance is attributed to margin expansion across all three business segments that have gradually trended up since early 2009 as building material prices eased off. Outstanding construction order book is about RM6.5bn, including the RM1.8bn Nam Theun 1 project which is pending finalisation. Property division remains strong with RM620m sales YTD, an improvement of RM130m from 2QFY10. The company is on track to achieve the targeted RM800m in sales. Unbilled sales stand at RM600m.
• MRT project may be rolled out in early CY2011
Management shed some light on the proposed RM36bn MRT project of which Gamuda and its JV partner MMC are eyeing the RM13bn tunnelling works. Although still pending Cabinet’s approval, management is confident that this project will be rolled out by early CY2011 and will be financed on a deferred payment basis, thereby alleviating pressure on government’s budget constraint. While it will boost orderbook significantly in the near term, we believe replenishment post securing this mega project will be minimal given capacity constraint. Assuming Gamuda’s share of RM6.5bn and an EBIT margin of 10%, FY11 and FY12 EPS will only by marginally higher by 0.8% and 1.6%. As such, we make no changes to our estimates pending the Cabinet’s approval.
• Downgrade to HOLD, TP:RM3.50
As share price has achieved our existing TP of RM3.18 since the announcement of the MRT project, we downgrade our call from a BUY to a HOLD as we believe upside potential has mostly been priced in. Our TP has however be revised to RM3.50 as we rollover our valuation to FY11 while maintaining our 20x P/E target which is inline with historical average.
Net profit came in at RM73.0m for 3QFY10 and RM204.1m for 9MFY10. Although results achieved 69.5% and 67.7% of house and consensus full-year estimates, we deem it to be broadly in line as we expect a stronger 4QFY10. A second net interim dividend of 4.5 sen (6 sen gross) per share has been declared, bringing total net dividends declared YTD to 9 sen per share, which matches our expectations. We do not expect a final dividend in 4QFY10.
Y-o-y, 9MFY10 revenue at RM1.74bn is pretty flattish compared to RM1.79bn in 9MFY09. However, 9MFY10 net profit of RM204.1m is a 36.7% improvement over 9MFY09’s RM150.4m. The improved performance is attributed to margin expansion across all three business segments, and has gradually trended up since early 2009 as building material prices eased off. For the construction segment, Yenso Park infrastructure works and the Electrified Double Tracking Project (EDTP) contributed to the improved margins. Work on the EDTP has reached 44% completion, with 95% of project corridor successfully handed over. Outstanding construction order book is about RM6.5bn, including the RM1.8bn Nam Theun 1 project which is pending finalisation. (see Figure 2).
Meanwhile, property sales remain strong with RM620m sales YTD, an improvement of RM130m from 2QFY10. The company is on track to achieve the targeted RM800m in sales, while unbilled sales stands at RM600m. Going forward, the company’s projects in Vietnam is set to gain traction, with Tan Thang and Yenso Park development slated for soft launch in August and October respectively. As the projects contribute a total of RM16bn in GDV, they are expected to overtake Malaysian property ventures in the coming years.
Mass Rapid Transit (MRT) proposal
Management shed some light on the proposed RM36bn MRT project at the analyst briefing yesterday. Gamuda and its 50:50 JV partner, MMC Corporation, will be vying for the tunnelling works of the MRT and are confident that this project will be rolled out by early CY2011 although it is has yet to obtain Cabinet’s approval. Having said that, we understand discussions are ongoing and evaluations are at an advanced stage.
The MRT proposal has been unveiled in the 10 Malaysia Plan as part of the Government’s efforts at improving public transportation system. Together with the proposed RM7bn LRT extension, 185km of new rail lines will be constructed, with the MRT contributing 150km and the LRT 35km. The project driver will be Gamuda-MMC, whose role will be to obtain approval for the MRT proposal, undertake design and specification works and finalise project budget, among other things.
The MRT proposal includes the construction of 3 lines, named the Red Line, Green Line and Circle Line respectively. As the name indicates, the Circle Line aims to integrate the Red and Green line with the existing 2 LRT lines operated by Putra and Star LRT. The project will be undertaken in 2 phases. The first phase has been allocated a budget of RM23bn, to be constructed over a period of 5 years (2011 – 2016), while the second phase will be constructed over a period of 4 years (2015 – 2019) with an estimated value of RM13bn.
In terms of value, about 30% of the MRT will be built underground, running a length of approximately 40km –50km. As few contractors in the country possess a track record in tunnelling works, Gamuda-MMC will undertake the tunnelling portion of the MRT project, with an estimated value of RM13bn. As it falls into Phase 2 of the project, the duration of the project will be 5 years until 2016.
To undertake the project, Gamuda-MMC would be required to raise RM3bn debt and RM1.8bn performance bond. The project would be undertaken on a deferred payment scheme, in which the deferred payment period will be over the tenure of the securities. The tenure of the debt securities has not been confirmed, although we gather it will be 10 to 20 years. As current discussions goes, the government will also undertake to make payments on the RM3bn debt to be raised. Therefore, we see little risks in Gamuda-MMC’s ability to raise debt.
While this project will boost orderbook significantly in the near term, we believe ordebook replenishment post securing this mega project will be minimal given capacity constraint. Currently, we have assumed annual order book replenishment of RM2bn.
Assuming Gamuda’s share of the project at RM6.5bn and a conservative EBIT margin of 10%, FY11 and FY12 EPS will only by marginally higher by 0.8% and 1.6%. As such, we make no changes to our estimates pending the Cabinet’s approval. The 10MP detailed development programme for 2011 – 2012 scheduled for release in August may provide better clarity on the implementation timeline of the MRT project.
As share price has achieved our existing TP of RM3.18 since the announcement of the MRT project, we downgrade our call from a BUY to a HOLD as we believe upside potential has mostly been priced in. Our TP has however be revised to RM3.50 as we rollover our valuation to FY11 while maintaining our 20x P/E target which is inline with historical average.
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