Gamuda core net profit above forecast

Infrastructure-property company Gamuda Bhd’s core net profit for the financial year ended July 31 was 15% above CIMB Equities Research’s full-year forecast and 9% above consensus estimates.

The research house said Gamuda recognised a RM304.5mil impairment from the water deals – where it sold a 40% stake in Syarikat Pengeluar Air Sungai Selangor Sdn Bhd (Splash) and got a receivables haircut for 80%-owned Gamuda Water.

The construction segment’s pre-tax profit surged 37% on-year (peak billings). Property earnings beat its RM3.5bil sales target by RM90mil.

“The FY18 core net profit grew 17% on-year. The full-year dividend per share of 12 sen is in line,” it said in a report.

Gamuda expected the pace to regain momentum in FY19, supported by its RM6bil order book, of which the MRT 2 constitutes 92%. The RM6bil order book is set to deplete substantially over the next 12 months due the sector’s downturn.

However, the property development segment’s pre-tax margin grew 2% in FY18 from 8% in the nine-month period of FY18.

The group said margins for both local and international projects bottomed out in the third quarter of FY18.

The Gamuda Cove development in Dengkil, Selangor, has generated strong pre-launch interest, the group said.

It aimed to generate sales of RM4bil in FY19 and RM4.5bil in FY20, or up by 11.4% to 12.5% on-year over the next two years.

The research house pointed out that despite the strong core earnings in FY18, it was reducing its FY19-FY20 forecast earnings per share by 14% to 27% to reflect the removal of Splash’s earnings of about RM100mil per year and lower water earnings from the revised operations and management contract for 80%-owned Gamuda Water.

The forecast earnings reduction is also to reflect a cut in construction pre-tax margin to 8%-9% from 10%-12%.

Any downside from the MRT 2 cost rationalisation is likely to be offset by better property development earnings in FY19-FY21.

“We have cut our target price (at an unchanged 40% revised net asset value discount) as we have factored in higher borrowings during FY18, excluded the project delivery partner discounted cashflow value for MRT 2, and rolled over our valuations to forecast end-calendar year 2019, during which we assume zero contract wins and lower construction margins.

“Upside risk is a revival of the MRT 3 (circle line) and the high-speed rail projects.

“We maintain the counter at a reduce,” said CIMB Research.