More upside for Gamuda in FY10

KUALA LUMPUR: HwangDBS Vickers Research is maintaining its Buy call on Gamuda Bhd with a target price of RM4.25 as it sees more upside for the infrastructure-based company in the financial year 2010.

The research house said on Sept 30 it continues to like Gamuda as a large cap construction stock with a niche in government contracts, and a diversifying earnings base including Vietnam. Its target price is based on sum-of-parts valuation.

On Sept 29, Gamuda reported its 4Q net profit fell 38.3% to RM43.29 million from RM70.2 million a year ago due to sharply higher operating expenses.
Revenue however rose 10.68% to RM942.24 million from RM851.3 million. Earnings per share were 2.16 sen compared with 3.50 sen.

HwangDBS Vickers Research said the 4QFY09 result was within its expectation but slightly below consensus. Net profit was RM43 million(down 7% on-quarter, down 38% on-year), bringing FY09 profit to RM194 million.

4Q09 construction margin remained subdued at 2%-3%, like the last three quarters. Property sales surged 2.5 times on-quarter in 4QFY09 to RM250 million, bringing FY09 sales to RM500 million. Unbilled sales of RM510 million will be recognised progressively over the next two financial
years.

Gamuda’s balance sheet continued to strengthen, with net gearing improving to 12% from 16% in 3QFY09, as payments continued to be prompt for its
double tracking project.

"FY10F expected to be stronger, new orders in 1QFY10. With Gamuda participating in tenders worth RM4 billion currently (RM3 billion in the Middle East and RM1 billion locally), on top of the three mega projects worth RM17 billion  to RM18 billion, there could be a flurry of contracts in 1QFY10," it said.