Gamuda Berhad: 1HFY07/10 Results To Disappoint - 19/03/2010

PP 7767/09/2010(025354)
Malaysia Corporate Highlights

RHB Research
Institute Sdn Bhd
A member of the
RHB Banking Group
Company No: 233327 -M
R e su l ts Pr e v i e w
19 March 2010
MARKET DATELINE
Gamuda Share Price

Fair Value
:
:
RM2.80
RM2.05
1HFY07/10 Results To Disappoint Recom : Underperform
(Maintained)
Table 1 : Investment Statistics (GAMUDA; Code: 5398) Bloomberg: GAM MK

Net Net
FYE Turnover Profit# 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) 29.0 - 8.5 1.8 6.2 0.1 2.9
2010f 2,958.5 277.0 13.6 41.4 20.5 16.0 (8.9) 1.7 8.1 0.2 4.3
2011f 3,370.5 326.6 16.1 17.9 17.4 19.0 (10.0) 1.5 8.7 0.4 4.3
2012f 3,194.9 331.3 16.3 1.5 17.2 23.0 nm 1.4 8.1 0.5 4.3
Main Market Listing / Trustee Stock / Syariah-Approved Stock By The SC #Ex-EI * Consensus Based On IBES Estimates
♦ To miss expectations. Taking the cue from the still sub-par construction Issued Capital (m shares) 2,017.5
margins recorded by peers IJM and WCT in their just-released Oct-Dec 09 Market Cap(RMm) 5,649.0
results, we expect Gamuda’s 2QFY07/10 results, due out by the end of the Daily Trading Vol (m shs) 7.3
month, to miss expectations. We expect Gamuda’s 2QFY07/10 core net 52wk Price Range (RM) 1.85-3.38
profit to come in at RM65-70m. Cumulatively, 1H net profit of RM128- Major Shareholders: (%)
EPF 10.1
133m is equivalent to only 44-46% of our full-year forecast and 42-43% of
Raja Dato’ Seri Eleena 7.4
the full-year market consensus.
Platinum Investment 6.2
♦ No meaningful margin recovery. At RM128-133m, while net profit in
1HFY07/10 will have grown 23-28% yoy, this is still lower than our full- FYE Jul FY10 FY11 FY12
year projection of 49% and the full-year market expectation of 58%, EPS Revision (%) -5 - -
Var to Cons (%) -15 -15 -29
premised upon a strong recovery in construction margins that has thus far
remained to be seen in the sector. IJM’s construction PBT margin only PE Band Chart
recovered marginally from 1.4% to 2.2%, while WCT’s group EBIT margin
fell from 4.7% to 1.9% over the last three months (WCT’s construction PER = 30x
PER = 25x
EBIT margin is not a good benchmark as it is inflated by inter-company PER = 20x
dividend payment) (see Chart 1), as the impact of cost inflation had PER = 15x
remained deeply entrenched in the industry.

♦ Forecasts. We are downgrading FY07/10 net profit forecast by 5%,
having reduced our blended construction EBIT margin from 5% to 4.1%.
♦ Risks to our view. These include: (1) New contracts come in above our
target of RM1bn per annum in FY07/10-11; and (2) Stronger-than- Relative Performance To FBM KLCI
expected recovery in construction margins.
♦ Risk appetite for construction stocks to improve. We are beginning Gamuda
to turn a little more upbeat on the sector, prompted largely by investors’
improving risk appetite for construction stocks following: (1) The massive
FBM KLCI
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 and rising arbitration cases).
♦ Maintain Underperform. However, upside in Gamuda’s share price is
capped by rich valuations. Indicative fair value is trimmed by 3% from Joshua CY Ng
(603) 92802151
RM2.12 to RM2.05 based on 14x revised CY10 EPS of 14.7sen, in line with
joshuang@rhb.com.my
our benchmark 1-year forward target PER for the construction sector of
10-14x.
Please read important disclosures at the end of this report. Page 1 of 3
A comprehensive range of market research reports by award-winning economists and analysts are exclusively
available for download from www.rhbinvest.com
19 March 2010
Chart 1: Quaterly Construction Margins (%)
10
0
Jul-Sep 0 8 Oct -D ec 0 8 Jan-M ar 0 9 A p r-Jun 0 9 Jul-Sep 0 9 Oct -D ec 0 9
-2
-4
-6
Gamud a IJM W CT
*Source: Bursa Malaysia Announcements, RHBRI

Note: For Gamuda, periods represent Aug-Oct 08, Nov 08 – Jan 09, Feb– Apr 09, May-Jul 09 and Aug-Oct 09
Margins at group EBIT level for WCT (as construction EBIT margins are inflated by inter-company dividend payments),
and PBT for Gamuda & IJM, in accordance with their respective segmental breakdown formats as announced to Bursa Malaysia
Table 2: Outstanding Construction Orderbook

Project Balance Of Works (RMbn)
Ipoh – Padang Besar double-tracking project 4.1
Nam Thuen 1 hydroelectric project 1.8
Yenso Park Infrastructure works 1.0
Outstanding works in the Gulf states 0.6
Total 7.5
Source: Company
Table 3: Earnings Forecasts Table 4: 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 197.9 257.3 363.6 397.1

EBITDA 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 282.2 380.4 447.6 455.2

Tax -78.0 -95.1 -111.9 -113.8
PAT 204.2 285.3 335.7 341.4
Minorities -10.5 -8.3 -9.2 -10.1
Net Profit 193.7 277.0 326.6 331.3
Source: Company data, RHBRI estimates
Page 2 of 3
Technical Viewpoint: Gamuda (19 Mar 2010) - Gamuda
Chart 2 : Gamuda Technical View Point

♦ After hitting the lowest level since May 1999 at
RM1.25 in end-Oct 2008, Gamuda’s share price has
staged an impressive recovery trend.
♦ But just after topping at RM3.44 high in early Aug

2009, a consolidation began to take shape.
♦ In Nov 2009, a breakdown from the crucial support

of RM3.06 triggered a further setback, forcing it to
slide to the RM2.59 support level.
♦ Since then, it began to stabilise at between a

support of RM2.59 and the Jan high’s of RM2.96.
♦ Of late, it regained above the 10-day and 40-day

SMAs on renewed bargain-hunting supports, before
closing yesterday at RM2.80 with a “doji” candle.
♦ But with a mild improvement on the short-term

momentum readings, it could slowly trend higher
from here towards Jan’s high of RM2.96 and the
RM3.06 hurdle on follow-through buying supports.
IMPORTANT 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. The opinions and information
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sell the securities covered herein. RHBRI does not warrant the accuracy of anything stated herein in any manner whatsoever and no reliance upon such statement by anyone
shall give rise to any claim whatsoever against RHBRI. RHBRI and/or its associated persons may 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 objectives of persons who
receive it. The securities discussed in this report may not be suitable for all investors. RHBRI recommends that investors independently evaluate particular investments and
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The recommendation framework for stocks and sectors are as follows : -
Stock Ratings
Outperform = The stock return is expected to exceed the FBM 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 more over 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 on higher risks.
Market Perform = The stock return is expected to be in line with the FBM KLCI benchmark (+/- five percentage points) over the next 6-12 months.
Underperform = The stock return is expected to underperform the FBM KLCI benchmark by more than five percentage points over the next 6-12 months.
Industry/Sector Ratings
Overweight = Industry expected to outperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.
Neutral = Industry expected to perform in line with the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.
Underweight = Industry expected to underperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.
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PP 7767/09/2010(025354)

Malaysia Corporate Highlights

Gamuda Share Price

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

remained deeply entrenched in the industry.

Please read important disclosures at the end of this report. Page 1 of 3

Chart 1: Quaterly Construction Margins (%)

*Source: Bursa Malaysia Announcements, RHBRI

Table 2: Outstanding Construction Orderbook

Table 3: Earnings Forecasts Table 4: Forecast Assumptions

EBITDA 197.9 257.3 363.6 397.1

Depreciation -14.1 -14.8 -15.6 -16.4

Pretax Profit 282.2 380.4 447.6 455.2

Chart 2 : Gamuda Technical View Point

♦ But just after topping at RM3.44 high in early Aug

♦ In Nov 2009, a breakdown from the crucial support

♦ Since then, it began to stabilise at between a

♦ Of late, it regained above the 10-day and 40-day

♦ But with a mild improvement on the short-term

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

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