Gamuda Berhad : 1HFY07/10 Net Profit Grows 26% YoY From A - 26/03/2010

8/9/2019 Gamuda Berhad : 1HFY07/10 Net Profit Grows 26% YoY From A - 26/03/2010

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Table 1 : Investment Statistics (GAMUDA; Code: 5398) Bloomberg : GAM MK

Ne t Net

FYE Turnover Profi t# EPS# Growth PER C.EPS* P/ CF P/ NTA ROE Gearing GDY

Jul (RMm) (RMm) (sen) (%) (x) (sen) (x) (x) (%) (%) (%)

2009 2,727.3 193.7 9.7 (40.7) 29.4 - 8.6 1.8 6.2 0.1 2.8

2010f 2,958.5 277.0 13.6 41.4 20.8 15.0 (9.0) 1.7 8.1 0.2 4.2

2011f 3,370.5 326.6 16.1 17.9 17.7 20.0 (10.1) 1.5 8.7 0.4 4.2

2012f 3,194.9 331.3 16.3 1.5 17.4 22.0 nm 1.4 8.1 0.5 4.2

Main Market Listing / Trustee Stock / Syariah-Approved Stock By The SC #Ex-EI * Consensus Based On IBES Estimates

♦ Below market. 1HFY07/10 net profit came in within our forecast but

missed market expectation.

♦ No blessing from Selangor state government on water deal as yet.

Gamuda said that Splash’s takeover bid for all water assets in the Klang

Valley for RM10.75bn was initiated by Gamuda and Sweet Water that

collectively hold a 70% stake in Splash. The remaining 30% shareholder

in Splash, the Selangor state government investment arm Kumpulan

Perangsang Selangor (KPS), was not at all involved in the exercise. As

such, the offer by Splash should not be construed as carrying with it the

blessing from Selangor state government.

♦ Not too hopeful on new construction jobs. Gamuda is not too hopefulabout securing new construction jobs over the immediate term, as the roll-

out of new projects, both in the local and overseas markets, remains slow.

Gamuda also revealed that it is not longer in the running for the Hulu

Terengganu hydroelectric project.

♦ Maiden property launches in Vietnam in 2H. Gamuda guided

US$170m and US$100m sales from Yenso Park and the Tan Thang project

in FY07/11. Soft and official maiden launches are in May and Aug 2010 for

Yenso Park, and Aug and Sep/Oct 2010 for the Tan Thang project.

♦ Risk appetite for construction stocks to improve. We are beginning

to turn a little more upbeat on the sector, prompted largely by investors’

improving risk appetite for construction stocks following: (1) The massive

underperformance of the sector vis-à-vis the market in 4Q2009 and1Q2010; and (2) A better sector news flow and new expectations leading

up to the announcement of the 10th Malaysia Plan (10MP) in June 2010.

These may moderate negative elements such as: (1) The slow pace of the

roll-out of public projects, shrinking margins and declining dominance of

established players in large-scale projects locally; and (2) The not-so-rosy

outlook and increased operating risks in key overseas markets (following

the Dubai credit crisis, Dong’s devaluation and rising arbitration cases).

♦ Maintain Underperform. However, upside in Gamuda’s share price is

capped by rich valuations. Indicative fair value is RM2.05 based on 14x

revised CY10 EPS of 14.7sen, in line with our benchmark 1-year forward

target PER for the construction sector of 10-14x.

Corpora te H igh l ights

R e s u l ts / B r i e f i n g N o t e

Gamuda1HFY07/10 Net Profit Grows 26% YoY From AWashout A Year Ago M

a l a y s i a

RHB ResearchInstitute Sdn BhdA member of theRHB Banking GroupCompany No: 233327 -M

26 March 2010

Share Price : RM2.84Fair Value : RM2.05

Recom : Underperform (Maintained)

RHBRI Vs. Consensus

Above

In Line

Below

Issued Capital (m shares) 2,017.5

Market Cap(RMm) 5,729.7Daily Trading Vol (m shs) 7.3

52wk Price Range (RM) 1.85-3.38

Major Shareholders: (% )

EPF 10.1

Raja Dato’ Seri Eleena 7.4

Platinum Investment 6.2

FYE Jul FY10 FY11 FY12EPS Revision (%) - - -

Var to Cons (%) -9 -20 -26

PE Band Chart

Relative Performance ToKLCI

Joshua CY Ng(603) 92802151

[email protected]

M A R K

E T

D A T E L I N E

P P

7 7 6 7 / 0 9 / 2 0 1 0 ( 0 2 5 3 5 4 )

Please read importan t disclosures at the end of this report.

Gamuda

FBM KLCI

PER = 30x

PER = 25x

PER = 20x

PER = 15x





1HFY07/ 10 Net Profit Grows 26% YoY From A Wash Out A Year Ago

♦ Below Market. 1HFY07/09 net profit came in within our expectation at 47% of our full-year forecast, but

missed market expectation at only 40% of the full-year market consensus.

♦ No blessing from Selangor state government on water deal as yet. Gamuda said that Splash’s takeover

bid for all water assets in the Klang Valley for RM10.75bn was initiated by Gamuda and Sweet Water that

collectively hold a 70% stake in Splash. The remaining 30% shareholder in Splash, the Selangor stategovernment investment arm Kumpulan Perangsang Selangor (KPS), was not at all involved in the exercise. As

such, the offer by Splash should not be construed as carrying with it the blessing from Selangor state

government. Incidentally, KPS made an announcement to Bursa Malaysia yesterday to clarify that it was “not

aware” of the offer that was made “independently” by the other two shareholders of Splash. We maintain our

view that the takeover bid will fall through as it is unlikely to get the blessing from both the Federal Government

and Selangor state government. It is not hard to imagine the kind of political backlash the governments will get

for allowing the water assets to move from a few “big corporations” to a “big corporation”, or in other words, to

remain with a “big corporation”. Recall, the governments are supposed to, pursuant to the Klang Valley water

sector restructuring, take full control of the water assets to ensure water remains affordable to the people. We

are more inclined to see Gamuda’s move as a tactic to pressurise the governments into speeding up their

actions.

♦ Not too hopeful on new construction jobs. Gamuda is not too hopeful about securing new construction jobsover the immediate term, as the roll-out of new projects, both in the local and overseas markets, remains slow.

Recall, Gamuda is keen to bid for the runway package of the new LCCT (believed to be worth RM300-400m) and

the Kelana Jaya and Ampang LRT line extension project (RM7bn) locally, and is eyeing four projects in the Gulf

states worth a total value of RM4bn comprising a highway project each in Qatar and Bahrain, and an airport

work package each in Qatar and Oman. Gamuda also revealed that it is not longer in the running for the Hulu

Terengganu hydroelectric project. Incidentally, Loh & Loh announced yesterday that its 60:40 JV with Sinohydro

Corp had been awarded by Tenaga Nasional a RM828.3m civil work contract for the Hulu Terengganu

hydroelectric project. In our forecasts, we assume Gamuda to secure RM1bn worth of new jobs in FY07/10. So

far in FY07/10, Gamuda has yet to secure any new contracts.

♦ Maiden property launches in Vietnam in 2H. During an analysts’ briefing about two weeks ago, Gamuda

guided US$170m and US$100m sales from Yenso Park and the Tan Thang project in FY07/11. Soft and official

maiden launches are in May and Aug 2010 for Yenso Park, and Aug and Sep/Oct 2010 for the Tan Thang project.

Gamuda also guided that when both the projects are in full swing three years from now, they should contribute

to RM1.8bn turnover and RM300m PBT combined. With two property project in Vietnam, Gamuda’s exposure to

Vietnam will hit about US$492.8m (RM1.63bn) (see Table 2). We continue not to reflect in our numbers any

earnings contribution from both the property projects in Vietnam as their maiden launches may still be subject

to delays due to various issues. In any case, contributions are likely to be insignificant during our forecast

period based on the “completion” method under the new accounting standards.

Table 2: Gamuda’s Expo sure To Vietnam

Yenso Park, Hanoi Tan Thang, HCMC Total

Area (acres) 1,235 204 1,439

GDV (RMm) 10,000 6,000 16,000

Project life (years) 10 7 -

Capital outlay (US$m) 400* 92.8^ 492.8

Capital outlay (RMm) 1,320 306 1,626

Expected soft launch May 2010 Aug 2010 -

Expected official launch Aug 2010 Sep/Oct 2010 -

Expect sales in FY07/11 (US$m) 170 100 270

*Gamuda thus far only invested US$100m

^US$82.8m for a 60% stake in operating company + US$10m shareholders loan

Source: Company, RHBRI

♦ Forecasts. Maintained.

♦ Risks to our view. These include: (1) New contracts secured coming in above our target of RM1bn per annumin FY07/10-11; and (2) Stronger-than-expected recovery in construction margins.





♦ Risk appetite for construction stocks to improve. We are beginning to turn a little more upbeat on the

sector, prompted largely by investors’ improving risk appetite for construction stocks following: (1) The massive

underperformance of the sector vis-à-vis the market in 4Q2009 and 1Q2010; and (2) A better sector news flow

and new expectations leading up to the announcement of the 10th Malaysia Plan (10MP) in June 2010. These

may moderate negative elements such as: (1) The slow pace of the roll-out of public projects, shrinking margins

and declining dominance of established players in large-scale projects locally; and (2) The not-so-rosy outlook

and increased operating risks in key overseas markets (following the Dubai credit crisis, Dong’s devaluation andrising arbitration cases).

♦ Maintain Underperform. However, upside in Gamuda’s share price is capped by rich valuations. Indicative

fair value is RM2.05 based on 14x CY10 EPS of 14.7sen, in line with our benchmark 1-year forward target PER

for the construction sector of 10-14x.

Table 3: Earnings Review (YoY Cumulative)

FYE Jul 2009 2010 YoY Observations/ Comments

(RMm) 6M 6M Chg

Turnover 1,205.7 1,227.2 2%Construction 962.5 923.2 (4%) In the absence of new jobs.Property development 193.3 244.5 26% Recovery in the property market.Concessions 50.0 59.5 19%

EBIT 91.1 115.0 26% Driven largely by improved construction margins.

Net inc/(exp) (22.2) (20.7) (7%)Associates & JVs 69.8 79.3 14%Pretax profit 138.6 173.7 25%Taxation (30.3) (37.5) 24%Minority interest (4.2) (5.2) 22%Net profit 104.1 131.1 26% Driven largely by improved construction margins.EPS (sen) 5.2 6.5 25%

Overall EBIT margin 8% 9% 2% ptsConstruction EBIT margin 2.9% 4.7% 1.8% pts Cost pressure eased.Pretax margin 11% 14% 3% ptsEffective tax rate 22% 22% (0% pt)

PBT breakdown*Construction 27.9 43.1 55% Cost pressure eased.Property development 43.5 49.4 13% Recovery in the property market.Concessions 89.4 103.3 15% Growing water treatment plant O&M business of 80%-owned Gamuda Water,

rising capacity utilisation at SSP3 and traffic growth at LDP, KESAS andSPRINT.

Elimination 0.0 (1.4) nmNet inc/(exp) (22.2) (20.7) (7%)Total 138.6 173.7 25%

*Including associates

Table 4: Earnings Review (QoQ)

FYE Jul 2010 2010 QoQ Observations/ Comments

(RMm) 1Q 2Q Chg

Turnover 624.0 603.2 (3%)Construction 466.8 456.5 (2%) Normal quarterly fluctuation.Property development 127.8 116.6 (9%) Normal quarterly fluctuation.Concessions 29.4 30.1 3%

EBIT 55.5 59.6 7% Driven largely by improved margins.Net inc/(exp) (11.2) (9.5) (15%)

Associates & JVs 39.2 40.2 2%Pretax profit 83.5 90.2 8%Taxation (17.5) (20.0) 15%Minority interest (3.0) (2.2) (28%)Net profit 63.0 68.0 8% Driven largely by improved margins.EPS (sen) 3.1 3.4 8%

Overall EBIT margin 9% 10% 1% ptConstruction EBIT margin 4.0% 5.3% 1.3% pts Cost pressure eased.Pretax margin 13% 15% 2% ptsEffective tax rate 21% 22% 1% pt

PBT breakdown*Construction 18.9 24.2 28% Driven by improved margins.Property development 24.3 25.1 3% Product mix skewed towards higher-margin properties.Concessions 52.1 51.2 (2%)Elimination (0.7) (0.7) nm

Net inc/(exp) (11.2) (9.5) (15%)Total 83.5 90.2 8%

*Including associates




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Table 5: Outstanding Construction Orderbook

Project Balance Of Works (RMbn)

Ipoh – Padang Besar double-tracking project 3.8

Nam Thuen 1 hydroelectric project 1.8

Yenso Park Infrastructure works 0.9

Outstanding works in the Gulf states 0.5

Total 7.0

Source: Company

Table 6: Earnings Forecasts Table 7: Forecast Assumptions

FYE Jul (RMm) FY09a FY10F FY11F FY12F FYE Jul FY10F FY11F FY12F

Turnover 2,727.3 2,958.5 3,370.5 3,194.9 Construction EBIT margin (%) 4.1 7.2 8.8

Turnover growth (%) 13.5 8.5 13.9 -5.2 New orderbook secured (RMbn) 1.0 1.0 2.0

EBITDA 197.9 257.3 363.6 397.1EBITDA margin (%) 7.3 8.7 10.8 12.4

Depreciation -14.1 -14.8 -15.6 -16.4

Net Interest -44.8 -38.2 -76.6 -101.7

Associates 143.2 176.2 176.2 176.2

EI 0.0 0.0 0.0 0.0

Pretax Profit 282.2 380.4 447.6 455.2Tax -78.0 -95.1 -111.9 -113.8

PAT 204.2 285.3 335.7 341.4

Minorities -10.5 -8.3 -9.2 -10.1Net Profit 193.7 277.0 326.6 331.3Source: Company data, RHBRI estimates

Chart 1 : Gamuda Technical View P oint

♦ After hitting the lowest level since May 1999 at

RM1.25 end-Oct 2008, Gamuda rolled out an

impressive uptrend, hitting RM3.44 in Aug 2009,before encountering a decent consolidation.

♦ It broke below RM3.06 crucial support level in Nov

2009, and headed towards the RM2.59 support

level in late Dec 2009.

♦ However, the stock managed to stabilise between a

support of RM2.59 and the Jan high of RM2.96 in

recent months.

♦ Since early this week, the stock saw a surge in

buying momentum, swinging from RM2.68 on

Monday to a high of RM2.90 yesterday, before

ending the day at RM2.84.

♦ Going forward, if it manages to sustain at above

the 10-day and 40-day SMAs near RM2.76-2.78, it

will retest Jan’s high of RM2.96 and the RM3.06

hurdle on follow-through buying supports.

♦ Its upward momentum will turn even more bullish if

it penetrates RM3.06.




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IMP ORTANT DISCLOSURES

This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI and RHB Investment Bank Berhad(previously known as RHB Sakura Merchant Bankers Berhad). It is for distribution only under such circumstances as may be permitted by applicable law. Theopinions and information contained herein are based on generally available data believed to be reliable and are subject to change without notice, and may differ orbe contrary to opinions expressed by other business units within the RHB Group as a result of using different assumptions and criteria. This report is not to beconstrued as an offer, invitation or solicitation to buy or sell the securities covered herein. RHBRI does not warrant the accuracy of anything stated herein in anymanner whatsoever and no reliance upon such statement by anyone shall give rise to any claim whatsoever against RHBRI. RHBRI and/or its associated personsmay from time to time have an interest in the securities mentioned by this report.

This report does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectivesof persons who receive it. The securities discussed in this report may not be suitable for all investors. RHBRI recommends that investors independently evaluateparticular investments and strategies, and encourages investors to seek the advice of a financial adviser. The appropriateness of a particular investment orstrategy will depend on an investor’s individual circumstances and objectives. Neither RHBRI, RHB Group nor any of its affiliates, employees or agents acceptsany liability for any loss or damage arising out of the use of all or any part of this report.

RHBRI and the Connected Persons (the “RHB Group”) are engaged in securities trading, securities brokerage, banking and financing activities as well as providinginvestment banking and financial advisory services. In the ordinary course of its trading, brokerage, banking and financing activities, any member of the RHBGroup may at any time hold positions, and may trade or otherwise effect transactions, for its own account or the accounts of customers, in debt or equitysecurities or loans of any company that may be involved in this transaction.

“Connected Persons” means any holding company of RHBRI, the subsidiaries and subsidiary undertaking of such a holding company and the respective directors,officers, employees and agents of each of them. Investors should assume that the “Connected Persons” are seeking or will seek investment banking or otherservices from the companies in which the securities have been discussed/covered by RHBRI in this report or in RHBRI’s previous reports.

This report has been prepared by the research personnel of RHBRI. Facts and views presented in this report have not been reviewed by, and may not reflectinformation known to, professionals in other business areas of the “Connected Persons,” including investment banking personnel.

The research analysts, economists or research associates principally responsible for the preparation of this research report have received compensation based

upon various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues.

The recommendation framework for stocks and sectors are as follows : -

Stock Ratings

Outperform = The stock return is expected to exceed the KLCI benchmark by greater than five percentage points over the next 6-12 months.

Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or moreover a period of three months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing to take onhigher risks.

Market Perform = The stock return is expected to be in line with the KLCI benchmark (+/- five percentage points) over the next 6-12 months.

Underperform = The stock return is expected to underperform the KLCI benchmark by more than five percentage points over the next 6-12 months.

Industry/Sector Ratings

Overweight = Industry expected to outperform the KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Neutral = Industry expected to perform in line with the KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Underweight = Industry expected to underperform the KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

RHBRI is a participant of the CMDF-Bursa Research Scheme and will receive compensation for the participation. Additional information on recommendedsecurities, subject to the duties of confidentiality, will be made available upon request.

This report may not be reproduced or redistributed, in whole or in part, without the written permission of RHBRI and RHBRI accepts no liability whatsoever for theactions of third parties in this respect.

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Gamuda Berhad : 1HFY07/10 Net Profit Grows 26% YoY From A - 26/03/2010