Gamuda (5398)

Hold
(unchanged)
TP: RM2.00
Current Price: RM1.95


 2QFY09 results could disappoint again, similar to the pattern seen in the recent 4Q08 results of construction groups.

 Double tracking project may see a VO, while SPLASH should remain in the limelight due to the government’s 31 Mar ’09 takeover deadline.

 Retaining our earnings forecasts pending results release. TP and Hold call are also unchanged.

Shortfall again? Gamuda's 2QFY09 results, due to be released at the end of this month, could fall below expectations. Recall that its 1QFY09 net profit of RM55m (-37% YoY, -22% QoQ) disappointed, and 2QFY09 net profit could show a sequential decline due to lower construction margins and slow property sales. Our current for FY09 net profit estimate of RM236m compares to the consensus’ RM264m. Indicatively, FY09 net profit could fall below RM200m (FY07: RM325m), which represents a potential downgrade of at least 15% from our estimate, and a significant 24% from consensus.

VO for double tracking project? Construction of the RM12.5b rail project (northern section) is largely on schedule with total completed works at 17.8% as at end-2008. We understand from MMC’s analyst briefing last week that the project may see a variation order (VO) to the tune of RM500m, raising total project value to RM13b. Elsewhere, there have been no developments at Nam Theun 1 (Laos), while details of the proposed RM30b Klang Valley LRT system, which Gamuda is eyeing, remain sketchy. Our view is that the entire development would be parcelled out in phases, with Gamuda having a good chance to secure a portion of the works, due to its strong delivery track record.

Water to hog the limelight. At 40%-associate SPLASH, we understand that there is some truth in recent press reports on Puncak Niaga Holdings exploring a takeover. Discussions are said to be (still) at a very preliminary stage. We expect the potential offer price for SPLASH to be higher than its book value (RM768m as at Mar '08, per audited accounts), but unlikely to match our full DCF value of RM2.5b (10.6% discount rate), which excludes operations and maintenance rights under Gamuda Water (80%-owned by Gamuda). SPLASH should remain in the limelight for a while due to the fast approaching deadline by the federal government to take over water assets in Selangor.

No change to forecasts. We maintain our earnings forecasts, pending the release of 2QFY09 results. Gamuda remains a Hold, with an unchanged target price of RM2.00 which is based on a 20% discount to its RNAV. Lower-than- expected 2QFY09 net profit would prompt us to cut our DPS forecast for FY09 – from 8sen presently. Meanwhile, we note that foreign shareholding has remained little changed, at still a high 45% as at Jan '09 vs. Nov ‘08.

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