GAMUDA

Its annualised first quarter of financial year 2017 (1QFY17) core net profits made up 89% of street’s full-year forecast.

The results were below expectations due to overestimated the property pre-tax margin, which fell four percentage points to 17.5% in 1QFY17.

The good news was the 20% year-on-year growth in construction pre-tax profit (8.5% margin). New profits from mass rapid transit 2 (MRT2)’s tunnelling and project development partner portions should begin contribution from 2QFY17 onwards given the current progress of less than 2%.

Tunnelling works are scheduled to commence in November 2017 for one of the 12 tunnel boring machines. The outstanding order book of RM8.9 billion comprises the RM7.7 billion (50% share) MRT tunnelling job and RM1 billion portion of the Pan Borneo Highway Sarawak contract.

Management reiterated its FY17 total property sales target of RM2.1 billion, which is 3% higher than FY16 as it is optimistic about the launch of new townships Gamuda Gardens (RM150 million target sales; RM6.9 billion GDV) and Kundang Estates in Rawang (RM50 million target sales; RM600 million GDV) given accessibility to MRT, and its venture in Ho Chi Minh City.

Overseas property sales make up 63% of the total targeted sales in FY17.

The second quarter of calendar year 2017 is the new target for the sale of Splash. Management confirmed that a final independent valuation is underway, while negotiations on the price are based on the RM2.8 billion to RM3.2 billion BV of Splash.

If the likely 15% discount to BV materialises, Gamuda’s cash proceeds would amount to as much as RM1.1 billion (40% stake; 45 sen per share).

Observers now (Dec 2016) believe there is a fair chance of a partial special dividend as major capex is manageable even without the sale of Splash.

Gamuda’s RM3 billion to RM4 billion contract win target is higher than street’s RM2 billion estimates for FY17. This is because the group aims to secure the biggest package from the Gemas-Johor Baru double tracking, while it is fairly confident of securing light rail transit Line 3 and Pan Borneo Highway Sabah.

Gamuda will bid for the East Coast Rail Line and high-speed rail (potentially RM30 billion to RM40 billion for local players). The group is keen to participate in new MRT tunnelling jobs in Singapore but this will not materialise soon.

In the medium term, early election plays, job flows and Splash’s sale are key catalysts, which is why Gamuda remains top big-cap sector pick and the biggest proxy for the rail theme.