MMC-Gamuda joint venture on track

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Gamuda Bhd
(Sept 26, RM4.82)
Buy with target price of RM5.50:
Fourth quarter of financial year 2014 (4QFY14) results due on Sept 29 will not spring any surprises; we expect net profit to grow 5% quarter-on-quarter (q-o-q) to RM186 million to meet our full-year forecast of RM700 million. Construction pretax margin should be flat q-o-q at 9%, but should rise in FY15F when recognition for tunnelling works peak and offset lower-margin project delivery partner (PDP) fees.

Property sales have broadly met Gamuda’s full-year target of RM1.9 billion, implying sales will be RM400 million in 4QFY14. Gamuda is reviewing its FY15 sales target of RM2 billion (domestic and Vietnam), likely with a downward bias for Vietnam. Sales have slowed substantially at Horizon Hills, falling 20% to 25% year-on-year (y-o-y) in FY14.

The MMC-Gamuda joint venture (JV) is awaiting the official award letter for its PDP role, which could arrive by year-end. We understand the delay is due to a local consultant concluding the alignment study by Halcrow. Despite the delay, the project timeline is intact: call for tenders by second half of calendar year 2015 (2HCY15), and award in 1HCY16. The bonus would be a contract for the Penang Integrated Transport System which is at the request for proposal stage, which well be out by year-end.

We expect an effective resolution for Splash with the of Selangor’s political crisis. Also, the signing of the master agreement between the federal and Selangor governments for the three concessionaries will not be complete without including Splash. We still believe all involved parties will be rational and the offer will be closer to its net asset value of RM2.5 billion.

With the key catalysts in place, the stock will play catch up soon. Year-to-date, it has only inched up 3% vs 14% for IJM Corp Bhd and flat Kuala Lumpur Composite Index (KLCI) performance.

Foreign shareholding is stable at 29% but way below the June 2013 level of 48%. — AllianceDBS Research, Sept 26



This article first appeared in The Edge Financial Daily, on September 29, 2014.