GAMUDA - Start of rising earnings trend

Start of rising earnings trend; new warrants to “reward” shareholders Earnings improved, warrants enticing. Gamuda’s 1QFY10 net profit was within our expectation as property sales and construction margins improved. A surprise 6sen interim DPS (+50% YoY) was declared, leading us to raise full-year DPS forecast to 12sen from 8sen. A new 1-for-8 5-year warrants to raise RM742m (maximum) is offered at just 10sen each (exercise price not fixed yet), which will provide longer term funding, particularly for its Vietnam property ventures. Buy.

1QFY10 results in line. 1Q’s healthy RM63m net profit (+14.5% YoY, +45.6% QoQ) was within our expectation (22% of our FY10 forecast), but appeared to be below the market’s, at 19% of full-year consensus earnings. Improved property sales of RM250m in 1Q10 (+210% YoY) and better construction margins aided YoY pretax profit growth, aside from continued sturdy contribution from its water concessions (see segmental breakdown for details). Net gearing improved significantly to just 0.09x (Jul 09: 0.12x), with net debt narrowing to RM278m (Jul 09: RM385m). Interim DPS of 6sen was higher than our 4sen projection.

Proposes 1-for-8 renounceable warrants. This involves a maximum 267.7m warrants which will be issued at 10sen each. The issuance will raise RM26.8m gross proceeds initially and up to RM714.8m over a 5-year period to fund Gamuda’s long-term plans, particularly its Vietnam property development projects. The warrants’ exercise price has yet to be determined, but an indicative is RM2.67 based on Gamuda’s last 5-day weighted average share price. We estimate a net 4% EPS dilution. At an issue price of just 10sen, the proposed warrants serve to entice shareholders to ride on the long-term upside potential of Gamuda.

Maintain Buy. We expect a more active rollout of major government infrastructure jobs in 2010. Prospects for Gamuda are improving on more manageable building material costs and a healthier property demand outlook. The group continues to vie for Middle East projects in Qatar, Bahrain and Oman worth a total RM4b. We retain our forecasts, expecting an improving QoQ earnings trend. Our forecasts imply a strong 45% rebound in FY10 profits. Our RNAV-based TP is RM3.80.

Gamuda & WCT - Top picks for Constructions Sector

KUALA LUMPUR: CIMB Equities Research sees the downside as fairly limited for WCT and Gamuda following the fallout from the developments in Vietnam and Dubai last week, though WCT is involved in Abu Dhabi only.

The research house said although the developments there were negative surprises, their implications for WCT and Gamuda were unlikely to be substantial.

CIMB Research said for Gamuda, the devaluation of the Vietnamese currency, the dong, "has both a cost savings impact and a small reversal of profits for infrastructure works at Yenso Park". It added the potential negative impact on property demand was likely to subside over time.

As for WCT, its exposure to the dong relates only to expenses of about RM1 million for its US$700 million Platinum Plaza project in Ho Chih Minh City.

"The good news is that both companies do not have exposure to Dubai. We maintain our forecasts and Outperform calls on WCT and Gamuda which are also our top picks for the sector," it said.

The research house said potential re-rating catalysts include subsiding fears over Vietnam and the Middle East, new contract wins, and progress of mega jobs. It also maintained its overweight on the CONSTRUCTION [] sector.

Written by Joseph Chin
Monday, 30 November 2009 13:44

Gamuda shares hit by uncertain outlook

PETALING JAYA: Shares of Gamuda Bhd hit a six-month low yesterday as investors cast a wary eye on the group’s prospects despite an improved performance in the first quarter ended Oct 31 and its rosy outlook for the construction sector in 2010. The lack of big projects secured by Gamuda since the start of its fiscal year ending July 31, 2010 (FY10) remained a key concern, analysts said.

The counter fell as much as 3% yesterday, but recovered somewhat to close at RM2.61 – down 5 sen, or 1.9%, for the day.

On Tuesday, Gamuda announced it made a net profit of RM63mil for the three months ended Oct 31, up 14.5% from the RM49mil recorded in the same quarter last year.

Revenue was up 1.6% at RM624mil.

The company also announced a surprise 50% jump in interim dividend payout to 6 sen per share, which prompted analysts to upgrade Gamuda’s full-year dividend forecast to 12 sen per share.

At the current market price, the stock’s potential dividend yield stood at 4.6%.

“I don’t think people see Gamuda as a high dividend-paying stock, but the increased cash payout will probably limit the stock’s downside risk, going forward,’’ a fund manager with a local asset management firm said.

Despite the improved year-on-year results, Gamuda’s net profit in its first three months made up 18% of Kenanga Research FY10 target of RM340mil and consensus estimates of RM337mil for the company.

Kenanga remains “neutral” on Gamuda, and has kept its FY10 and FY11 profit predictions intact based on Gamuda’s strong unbilled property book and better operating margins ahead.

But RHB Research Institute believes the consensus estimates are too high.

“The full-year consensus number can only be achieved if there are sharp increases in construction margins over the remaining quarters,’’ it said yesterday.

Gamuda’s construction pre-tax margin was 2.6% in the first quarter, which was far below the market’s projection of 6% for FY10.

RHB Research also believes that the market has “under appreciated” the possibility of delays in project implementation and sub-par margins due to stiff competition.

Other negative developments affecting Gamuda and many local construction players include reduced gross development expenditure in 2010 by the Government, Vietnam’s currency devaluation and the Dubai credit crisis.

RHB Research reckons that Gamuda’s current “rich valuations” have priced in the group’s earnings from its RM7.5bil outstanding construction orderbook.

At a briefing for analysts on Tuesday, Gamuda said it expected new contract awards to gather pace in the first half of next year.

Gamuda is vying for projects under the planned RM7bil Light Rapid Transport extension programme and the runway portion of the new low-cost carrier terminal at KL International Airport complex.

Gamuda also told analysts that it has emerged as the top two finalists for the Ulu Terengganu Dam project, and is currently bidding for RM4bil worth of jobs in Qatar, Oman and Bahrain.

On the property side, Gamuda is sticking to its planned May 2010 launching date for its residential units at Yenso Park in Vietnam.

On the local front, the company is reviewing its FY10 RM600mil sales target after a strong first quarter.

Meanwhile, Gamuda plans to sell as many as 268 million new warrants at 10 sen each on the basis of one warrant for every eight shares held.

Assuming a full conversion at a strike price of RM2.67, the exercise will raise RM715mil in fresh capital, but may dilute its earnings by about 5%.

sources from star newspaper dated 24 Dec.