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Thursday, 29 June 2017

(The Star) Gamuda stands to gain from booming construction sector

PETALING JAYA: Construction outfit Gamuda Bhd’s leading role in the multi-billion-ringgit transportation infrastructure projects will continue to stand it in good stead among investors.

Analysts said the company would be in a good position to benefit from the booming construction sector in Malaysia, given its dominant roles in the Mass Rapid Transit (MRT) and other rail-based projects.

AmInvestment Bank Research said in a report that Gamuda “is the best proxy” to also benefit from mega rail-based projects in the pipeline such as the LRT3, East Coast Rail Link and the Kuala Lumpur-Singapore high-speed rail.

Additionally, the research house said the company had “booked” itself a ticket to ride on the next infrastructure/property boom in Penang via its project delivery partner role in the Penang Transport Master Plan.

“We maintain our ‘buy’ call, forecasts and sum-of-parts based fair value of RM5.96, which values Gamuda’s construction business at 16 times 2018 net profit, in line with our benchmark one-year forward price-to-earnings ratio of 14 to 16 times for large-cap construction stocks.”

AllianceDBS Research, which has similar views on the company, has raised the earnings outlook. “We raised our earnings to factor in stronger wins over the next two years.

“However, we anticipate that there would likely be a lag effect before more meaningful earnings contribution, as land acquisition and actual mobilisation of machinery could be slower than expected for a project like the ECRL.

Gamuda saw its net profit jump 11.9% to RM170.9mil, while revenue was up 79.6% to RM839.4mil for the third quarter ended April 30, 2017.”

The company attributed the increase in revenue and profit mainly to the higher work progress of the underground and elevated works of the Klang Valley MRT Line 2.

Year-to-date, the company’s net profit is up 5.3% to RM499.34mil, while revenue is up 45.8% to RM2.2bil.

MIDF Research said Gamuda’s nine-month results lagged its forecasts, as it had assigned a higher construction progress billings rate for the cumulative period.

“We believe the 2017 results will even out the differences.”

UOB Kay Hian Research, meanwhile, said the company’s earnings were within expectations.

“We deem the results in line as we expect earnings for subsequent quarters to continue to show positive growth momentum, driven by the MRT Line 2 construction works.

“We raise our net profit estimates for 2018 and 2019 by 4.6% and 7.8%, respectively, after assuming a higher yearly order book replenishment of RM5bil per annum.”

The research house said its assumptions were on the conservative side, as Gamuda’s order book is still 50% lower than management’s target of RM10bil per annum.

“Assuming the group manages to clinch RM10bil worth of new jobs per annum, our earnings would rise a further 4.4% and 8.1% for 2018 and 2019, respectively,” said UOBKayHian Research. Gamuda shares closed up three sen to RM5.48.