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Tuesday, April 26, 2011

GAMUDA - MRT & Vietnam to transform earnings

MRT & Vietnam to transform earnings
  • Potential to triple orderbook with tunneling works
  • Raised FY12-13F EPS after factoring in Vietnam sales
  • Most leveraged MRT proxy, maintain BUY and RM5.25 TP
Gamuda received encouraging response at DBSV POA
conference in Hong Kong recently.

MRT update. While the tunneling tender will be via Swiss Challenge, we remain confident that the PDP’s reputation and overall better cost structure compared to foreign contractors will see it emerge the winner. The tunneling job for all three lines is worth c.RM20bn based on 40% of total
MRT contract value of RM50bn. Guidance is for 15% tunneling pretax margins vs 5% for non-tunneling. Timeline for award for the approved Sg. Buloh-Kajang tunneling works is by 1QCY12 (RM7.5bn), and the other lines by 3QCY12. There is room to raise our RM2.00/share
DCF value for the MRT project (we factored in 50% value in our SOP), premised on RM14bn total tunneling works and 8.3% blended margins.

Raised FY12F/FY13F
earnings by 12%-30% to build in stronger local property sales of RM1.1bn for each year (vs
RM730m-790m previously). 6MFY11 property sales of RM600m implies it could exceed its RM1b FY11 sales target, which will be revised to RM1.3bn because of the buoyant market. We also assumed maiden sales contribution from Vietnam of RM1.2bn and RM1.7bn for
FY12-13F, respectively, based on average 60% take ups and 16-18% margins. These are below Gamuda’s targets of RM1.5bn and RM2.1bn and 20-25% margins. Celadon City in HCMC - slated for launch soon – is seeing strong interest (200 out of 250 units pre-registered). Gamuda City in Hanoi will receive in total 40 ha of land by July, sufficient for three years of launches. Launch is scheduled for July.

Still most leveraged to RM50bn MRT project - BUY.
There is the likely conversion of RM10bn (50% share) tunneling contract wins in CY12 with lucrative 15% margins. Despite the expected higher earnings, there is no change to our target price because it is based on DCF.

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