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.

Report From HWangDBS

Market Preview From HWangDBS (26 APR 2011)

Despite a mixed performance on Wall Street last night – as key U.S. equity indices ended between -0.2% and +0.2% at the closing bell – we reckon our Malaysian bourse would show resilience ahead.

Technically speaking, its benchmark FBM KLCI could continue its sideways trading pattern with a marginal positive tone today. The key market barometer, however, may struggle to clear its immediate resistance level of 1,530 in the meantime. Counters that may see added trading interest today will include: (a) Sime Darby, which has just been awarded an oil & gas fabrication contract valued at RM1.2b; (b) Alam Maritim, after it has entered into several agreements worth RM33.5m to provide oil & gas support services; and (c) Padiberas Nasional following the government’s extension of its contract to manage the country’s rice supplies for another 10 years.

Weekly Market Report (25 APR 2011)

While immediate downside risk appears fairly limited, our Malaysian bourse could be stuck inside a sideways trading pattern unless buying interest picks up soon. To foresee any sustainable market revival, the FBM KLCI must overcome 1,530 convincingly first.

The benchmark index rebounded initially (to a high of 1,535.09 on Thursday) but lost momentum subsequently in the week. It then settled at 1,522.75, near where it was (at 1,521.94) two Fridays ago. Larger gains were, nevertheless, posted by the FBM 70 Index (up 0.3%) and the FBM ACE Index (+4.8%) through the week. Meanwhile, lower liners saw active trading as daily volume averaged 1.2b shares valued at RM1.5b, versus the 1.1b units worth RM1.7b traded the previous week.

Overseas developments will be closely watched this week. Following Standard & Poor’s cut in the U.S. longterm credit outlook to negative last Monday, investors may get an update on the country’s financial standing when the Federal Open Market Committee meets on Tuesday and Wednesday. While the policymakers will likely keep the federal funds rate unchanged, the focus will be on:

1. possible timing hints on future interest rate hikes amid heightened inflationary pressures;
2. whether the US$600b quantitative easing program will end in Jun as scheduled, which can shift global fund flows trend and currency markets outlook.

(Note: The US$ has been falling lately. For example, vis-à-vis the Malaysian Ringgit, it hit RM3.0054 per US$ on Friday, a fresh high since the fixed exchange rate regime was lifted in Jul 05).

This comes as foreign interest on Malaysia equities remains slow so far. According to the stock exchange, trading participation from foreign investors stood at 24% in 1Q11, down from 27% in 2010 (though in absolute term daily average trading value by foreigners actually rose to RM519m from RM393m last year). On the other hand, retail investors were more active in 1Q11 with trading participation inching up to 27% (from 26% in 2010) and their daily average trading value climbing to RM583m (from RM378m in 2010). The latest statistics published last week also revealed that foreign ownership as a percentage of overall market capitalization had dipped slightly from 21.9% at the end of last year to 21.4% end-Mar this year.

Providing a balance to the external news flows will be several individual events on the local scene. They include:

1. the high-profile official visit by the Prime Minister of China scheduled on Wednesday through Saturday, which may see the signing of agreements with Malaysian companies in the key economic areas such as oil & gas, education and infrastructure; and
2. a court ruling (due on Thursday) on the takeover saga of EON Capital’s entire assets and liabilities by Hong Leong Bank.

Technically speaking, the FBM KLCI may just range-bound with a slight upward bias in the short run. A subsequent breakout from the congestion pattern could be forthcoming either by: (a) pulling away from its immediate resistance threshold of 1,530, thus propelling the benchmark index further towards the next resistance target of 1,550; or
(b) a cut below its 39-day moving average line (which is standing now at 1,522) will signal further downside ahead. This may then send the bellwether to test the first two support levels of 1,495 and 1,465, respectively.
Yet, judging from the underlying resilience of late, we are keeping our hopes that a positive momentum will prevail, and pave the way for us to see an eventual market recovery anytime soon.

Market Preview From HWangDBS (22 APR 2011)

We may see the benchmark FBM KLCI attempting to cut above the resistance barrier of 1,530 again today. This comes as our Malaysian bourse – the only market across the region to finish in the red yesterday – could recover after the 4.7-point dip. Nevertheless, trading interest is expected to be quite slow today as most regional peers (like Singapore, Indonesia, Philippines,
Hong Kong and India) are on holidays today. Wall Street – which saw its key equity indices rising between 0.4% and 0.6% last night – would also be closed tonight.

Amid a relatively quiet market backdrop, counters that could attract attention today include:

1. RHB Capital, after a media report said two foreign parties are in the midst of making a joint bid to acquire a stake in the bank;
2. Jerneh Asia, which has signed an MOU to explore a proposed acquisition of a Sabah-based property developer; and
3. CBIP, as the company has just announced a proposal to undertake a 1-for-1 bonus issue.

Market Preview From HWangDBS (21 APR 2011)

There is a chance for the benchmark FBM KLCI to break away from the resistance-turned-support line of 1,530 today, as the bellwether makes its way towards the next resistance target of 1,550 on the back of follow-through buying momentum.

Giving a boost to investors’ sentiment is the overnight jump on Wall Street. Key U.S. stock indices were up between 1.4% and 2.1% at the closing bell lifted by better-than-expected corporate financial results. Back home, we will also be hoping for positive vibes to emerge from the ongoing earnings reporting season as the likes of Tenaga and BAT are scheduled to announce their latest quarterly results this evening. Separately, there may be a pick-up in trading interest in TRC Synergy, which has just secured new construction contracts worth RM44m.

Report from HwangDBS

Petronas Gas - Buy with higher TP of RM13.50

Transformation takes shape
• Maiden contributions from regasification and power plants in FY12-13
• PGU gas supply will increase by up to 20% after completion of Melaka regasification plant
• Signing of RSA and PPA will be key catalysts; upgrade to Buy with higher TP of RM13.50

Transforming into multi-utility player.
Petgas will turn into a multi-utility player with the completion of its Melaka regasification plant in Jul 2012 and Kimanis power plant in 2013. We expect the regasification services agreement (RSA) between Petgas and Petronas to be finalized soon. There will be no fuel cost risk under
the RSA as gas supply will be procured by Petronas. Assuming RM1.5bn investment and 9% IRR, the plant will add 18% to net profit from FY13 onwards. We estimate IRR at 9% for the Kimanis power plant, and Petgas’s 60% stake will entitle it to c.RM130m annual contribution from FY14 onwards.

Sustainable 4% net yield despite higher capex.
Petgas registered strong net cash of RM2.1bn (RM1.06/share) for 9M11. We expect capex to rise to RM1.5bn p.a. over FY12-13 with the new investments, but FCF will remain strong at >RM600m due to improved profitability under the 4th GPTA. Petgas does not have a dividend policy. We assumed 66-68% net payout for FY11-12F with sustainable 50 sen DPS.

Additional gas supply to PGU.
We expect higher revenue for Petgas’ PGU gas volume upon completion of the Melaka regasification plant, as the 4th GPTA allows the use of third party gas. We raised FY13-14F net profit by 3%-18% after imputing additional 200mmscfd of gas volume that will be transported by PGU, and maiden contribution from the regasification plant. Consequently, our DCF-derived target price is raised to RM13.50/share.

Report from HWangDBS

Market Preview From HWangDBS (20 APR 2011)

After testing and bouncing up from the 39-day moving average line yesterday, we expect the key FBM KLCI to show an upward bias today. Technically speaking, the benchmark index could climb towards the first resistance line of 1,530. There was an overnight rebound on Wall Street too. Major U.S. equity indices rose between 0.4% and 0.6% at the closing bell as sentiment improved on the back of better housing starts data and corporate earnings momentum. Among the stocks that may attract added interest today include:

1. DRB-Hicom, after a news report said it has won a bid to take over the controlling stake in Pos Malaysia (at around RM3.60 per share) with an agreement likely to be signed early next week;
2. Berjaya Corp, which has confirmed that Kim Eng has approached its management to explore the possibility of acquiring a 100% stake (instead of 70%) in Berjaya Corp’s stockbroking arm; and
3. Emas Kiara, following its announcement to pay a special tax exempt dividend per share of 12 sen (translating to a generous yield of 16.3% based on its last done price of RM0.735).