Gamuda Bhd (AmResearch) buy; fair value RM4.20

On track for MRT role

• Gamuda Bhd reported 1QFY11 net profit of RM88mil against a turnover of RM634mil. This came in at 26% of our full-year estimate and 23% of consensus. Gamuda declared an
interim dividend/share (DPS) and single-tier DPS of 3 sen each, bringing total dividends declared to 6 sen/share (1QFY10: 6 sen). We have forecast a total DPS of 12 sen for FY11F.

• 1QFY11 earnings rose 16% QoQ largely due to stronger contributions from its property division. The division chalked up a 60% QoQ jump in pre-tax earnings to RM26mil on the back of an 8.6-ppt QoQ rise in property margins to 18.9%.

• Construction margin remained largely flattish QoQ at 5.5%, but higher than 2.7% registered a year earlier. We nevertheless expect the recovery in construction margins to gain traction in the coming quarters in tandem with higher contributions from select projects, especially the Ipoh-Padang Besar double tracking project.

• Gamuda is more positive about the domestic construction outlook moving into 2011 – with the expected roll-out of select cornerstone projects under the government’s Economic Transformation Programme (ETP). Abroad, it is eyeing the US$45bil Qatar MRT project, where tenders could be out next year after the Gulf nation won the rights to host the 2022 Fifa World Cup.

• Near-term, all eyes will be on the Klang Valley MRT project. Gamuda’s management remains fairly confident of securing the Project Delivery Partner (PDP) or ‘chariot master’
role for this massive RM36bil project. Earlier press reports indicate that the project is scheduled to start in July 2011, spanning over a period of five to six years.

• Gamuda also re-affirmed its intention to bid for the tunnelling portion worth 30% of the project’s cost or ~RM12bil-RM13bil. We gather that the MMC-Gamuda JV will likely still
have the first right of refusal to match any competing bids under a ‘Swiss Challenge’, should the government open up the tunnelling package to foreign parties.

• On a base-case scenario assuming that the Gamuda-MMC JV secures only the tunnelling package worth ~RM12.9bil at a net margin of 10%, the uplift to Gamuda’s FY12F-13F
earnings would be 9%-14%, respectively (Fair value: + 14% to RM4.78/share). Under a bluesky scenario - where we assume the Gamuda-MMC JV would secure both the tunnelling
package and project manager role at a blended net margin of 6.5% - Gamuda’s FY12F-13F earnings would jump by 16%-26% (Fair value: +29% to RM5.46/share).
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