Gamuda Bhd (Dec 19, RM3.12)
Maintain sell at RM3 with target price of RM2.94: Gamuda’s 1QFY12 results came in above house but within market expectations with net profit of RM132.3 million, accounting for 31% of house and 28% of consensus full-year estimates.
Despite flat revenue growth year-on-year in 1QFY12, the key earnings driver that surprised us on the upside was the property development division, which delivered an exceptional pre-tax profit (PBT) increase of 127% for the quarter. This is primarily attributed to new local property sales from Bandar Botanic, Horizon Hills and Jade Hills. Currently, Gamuda has RM1.2 billion of unbilled sales which are expected to tide the group over the next two years and make up for a potential shortfall in securing new sales in Malaysia and Vietnam.
The take-up rate at Celadon City, Ho Chi Minh City, has improved to 40% (98 out of 250 apartment units) from 20% as at October 2011, when the first phase was launched. However, Gamuda City Hanoi saw a 100% take-up of 72 terrace and semi-D houses in Phase 1 soft-launched recently. We opine that the difference in the performance of the mixed commercial developments is because buyers prefer landed to strata properties to hedge against property market downturn risk.
Gamuda’s construction segment PBT margin has normalised to 11.2% this quarter from 5.5% in 1QFY11, mainly due to reversal of earlier provisions made for uncertain cost of building materials required for the Ipoh-Padang Besar electrified double-tracking project (EDTP), now that the group has stockpiled sufficient steel and cement supplies for the project, due to be completed in June 2014.
Despite a strong first quarter, we foresee a challenging year ahead for the group in FY12, particularly for the Vietnam property business as buyers turn more cautious amid possible further credit tightening and the deteriorating global economic outlook arising from the European sovereign debt crisis.
Gamuda-MMC remains the frontrunner for the circa RM8 billion Sungai Buloh-Kajang (SBK) MRT tunnelling job, given its 7.5% built-in price advantage under the Swiss Challenge. The tender will close end-January and the contract award result will be announced by April or May 2012. The JV is expected to sign the project delivery partner (PDP) agreement with the government and MRT Corp in four to eight weeks to firm up the PDP fees and pain/gain formula for the entire circa RM60 billion Klang Valley MRT (KVMRT) project. The SBK MRT underground works is estimated to take five years to finish, and based on our model, we opine that earnings from this will start gaining momentum only from FY14 onwards.
With focus predominantly on the KVMRT, we think the group is unlikely to seriously consider other construction projects, although the management indicated that it will bid for a JV/subcontractor role with a Chinese contractor in the circa RM8 billion Gemas-Johor Baru EDTP project, as well as the much-delayed Langat 2 water treatment plant project.
Maintain “sell” with target price at RM2.94 based on sum-of-parts valuation. — ECM Libra Research, Dec 19
This article appeared in The Edge Financial Daily, December 20, 2011.
Maintain sell at RM3 with target price of RM2.94: Gamuda’s 1QFY12 results came in above house but within market expectations with net profit of RM132.3 million, accounting for 31% of house and 28% of consensus full-year estimates.
Despite flat revenue growth year-on-year in 1QFY12, the key earnings driver that surprised us on the upside was the property development division, which delivered an exceptional pre-tax profit (PBT) increase of 127% for the quarter. This is primarily attributed to new local property sales from Bandar Botanic, Horizon Hills and Jade Hills. Currently, Gamuda has RM1.2 billion of unbilled sales which are expected to tide the group over the next two years and make up for a potential shortfall in securing new sales in Malaysia and Vietnam.
The take-up rate at Celadon City, Ho Chi Minh City, has improved to 40% (98 out of 250 apartment units) from 20% as at October 2011, when the first phase was launched. However, Gamuda City Hanoi saw a 100% take-up of 72 terrace and semi-D houses in Phase 1 soft-launched recently. We opine that the difference in the performance of the mixed commercial developments is because buyers prefer landed to strata properties to hedge against property market downturn risk.
Gamuda’s construction segment PBT margin has normalised to 11.2% this quarter from 5.5% in 1QFY11, mainly due to reversal of earlier provisions made for uncertain cost of building materials required for the Ipoh-Padang Besar electrified double-tracking project (EDTP), now that the group has stockpiled sufficient steel and cement supplies for the project, due to be completed in June 2014.
Despite a strong first quarter, we foresee a challenging year ahead for the group in FY12, particularly for the Vietnam property business as buyers turn more cautious amid possible further credit tightening and the deteriorating global economic outlook arising from the European sovereign debt crisis.
Gamuda-MMC remains the frontrunner for the circa RM8 billion Sungai Buloh-Kajang (SBK) MRT tunnelling job, given its 7.5% built-in price advantage under the Swiss Challenge. The tender will close end-January and the contract award result will be announced by April or May 2012. The JV is expected to sign the project delivery partner (PDP) agreement with the government and MRT Corp in four to eight weeks to firm up the PDP fees and pain/gain formula for the entire circa RM60 billion Klang Valley MRT (KVMRT) project. The SBK MRT underground works is estimated to take five years to finish, and based on our model, we opine that earnings from this will start gaining momentum only from FY14 onwards.
With focus predominantly on the KVMRT, we think the group is unlikely to seriously consider other construction projects, although the management indicated that it will bid for a JV/subcontractor role with a Chinese contractor in the circa RM8 billion Gemas-Johor Baru EDTP project, as well as the much-delayed Langat 2 water treatment plant project.
Maintain “sell” with target price at RM2.94 based on sum-of-parts valuation. — ECM Libra Research, Dec 19
This article appeared in The Edge Financial Daily, December 20, 2011.
